PP101 terms
Natural Monopoly
"A monopolist that owes its existence to economies of scale is sometimes called a natural monopoly." (Cooter-Ulen Page 29) Examples of natural monopolies are public utilities, such as local water, telecommunications, cable, and power companies.
Platform Economy case (MBN15)
An economic system in which platform firms account for a substantial portion of economic activity An example and contributor to the growing platform economy is: going online for the extensive resale of Super Bowl tickets. In 1967, one would go to a physical location or make a phone call to purchase a ticket, but now, people are able to go online and purchase these tickets or resell since there is an excess quantity demanded.
Comparative Advantage (Law Of) Competition
An economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners and realize stronger sales margins. This is in the Sex, Booze, and Drugs chapter and because the product is illegal people have a comparative advantage in conducting illegal activites and that attracts the business of supply.
Perfectly Competitive (Industry, Market)
An industry in which there are so many firms that no one of them can influence the market price by its individual decisions and in which there are so many consumers that the individual utility- maximizing decisions of no one consumer can affect the market price (Cooter 28).
External Benefit
Benefits to a third party, someone who is not the buyer or the seller/outside the production process when a unit of output is produced
"10 Commitments" (Kramer)
Commit to anti-racism personnel policies and racial-equity training. Commit to pay equity Commit to giving employees a voice Commit to supporting full participation in democracy commit to lobbying for good commit to paying a living wage comment to paid parental sick-leave commit to full health cover coverage for all employees and support national health care Commit to an employee emergency relief fund or low-cost loan program commit to democratize employment application
Fixed Costs
cost which remain fixed and does not change irrespective of the level of activity undertaken ex: rent,buildings,machinery
General Equilibrium
explain behavior of supply,demand,and prices in an economy with several or interacting markets by proving that the interacting of demand and supply will result in a " general equilibrium".
Free Riding
situation in which individuals or businesses are receiving benefits without actually contributing anything, thus creating an unfair balance in the distribution of revenues or other resources Basic definition: When people consume a good without paying towards it
Externalities
when our transaction affects other persons or their property and they have not given consent to the transaction ex:The people who produce pollution don't consult in advance with people who end up breathing it( Negative Externality)
External Cost
cost incurred by an individual firm or community as a result of an economic transaction which they are not directly involved in.
Marginal Cost [MC] = Marginal Benefit [MB] (Each term + condition for economic optimum)
MC= cost associated with a small increase MB= benefit of the small increase Economic optimum: mc=mb, the cost is equal to the benefit, any more cost will not be worth the amount of benefit
Potential Pareto Improvement
"A pareto improvement is an improvement to a system when a change in allocation of good harms no one and benefits at least one person." (Google) This improvement allows for changes where there are both gainers and losers, but requires that the gainers gain more than the losers lose. If the condition is satisfied, the fainers can compensate the losers and still have a surplus left for themselves. Compensation does not actually have to be made, but it must be possible in principle. In cost-benefit analysis, a project is undertaken when its benefits exceed its costs, implying that the gainers could compensate the losers.
Why is "Let present trends (or 'business as usual') continue undisturbed" an important alternative?
"You need to do this because the world is full of naturally occurring, ongoing changes, some of which may mitigate, or worsen, the problem on which you are Working" (Bardach 18). However, do not list your alternative as "do nothing" Because it is not possible to simply stay passive or out of the way of important issues In policy.
Cartel (MBN16)
A group of independent businesses, often on an international scale, that agree to restrict trade, to their mutual benefit. The government discourages them bc they're difficult to keep together because they have to be able to share, substitute, have stability, and solidarity in order to be successful. "Conversely, a breakdown in one or more of these factors has been the downfall of each one that has failed. Most successful cartels are international. They are either effectively beyond (or exempt from) national laws forbidding them or encouraged by or made up of govern-ments themselves."
Oligopoly (MBN15)
A market structure in which only a few sellers offer similar or identical products
Adverse Selection
A process in which "undesirable" (high-cost or high-risk) participants tend to dominate one side of the market, caus-ing adverse effects for the other side; often results from asymmetric information. It refers to a situation where sellers have more information than buyers have, or vice versa, about some aspect of product quality, although typically the more knowledgeable party is the seller, it is typically when someone or a group is being exploited. (ex: The critics' idea of the adverse selection is appropriate since those who would buy the insurance would only really be those living in a high-risk earthquake-prone area or those living in old homes since they are the ones who would need extra coverage. The company could benefit by raising the prices on something they know people need.)
Monopoly
A single supplier; a firm that faces a downward-sloping demand curve for its output and therefore can choose the price at which it will sell the good. A monopoly can arise and persist only where there are barriers to entry that make it impossible for competing firms to appear. In general, such barriers can arise from two sources: first, from statutory and other legal restrictions on entry; and second, from technological conditions of production known as economies of scale. An example of a statutory restriction on entry was the Civil Aeronautics Board's refusal from the 1930s until the mid-1970s to permit entry of new airlines into the market for passenger traffic on such major routes as Los Angeles-New York and Chicago-Miami. The second barrier to entry is technological. Economies of scale are a condition of production in which the greater the level of output, the lower the average cost of production. Where such conditions exist, one firm can produce any level of output at less cost than multiple firms.
Earned Income Tax Credit (MBN 14)
A type of negative tax/tax credit used in the United States A form of government benefit
Affirmative Action (various readings)
Affirmative action: "a set of policies and practices within a government or organization favoring particular groups based on their gender, race, creed or nationality in areas in which they were excluded in the past such as education and employment." Executive Order 10925- affirmative action is referenced as President JFK created the Committee on Equal Employment Opportunity to ensure that projects with federal funds "taking affirmative action" to certify that all employees are treated without regard to their race, color, or national origin. (pdf reading) In 1964, President Lyndon B. Johnson signed the Civil Rights act of 1964 into law, prohibiting discrimination based on race or gender in all public places.
Platform Firm (MBN15)
Companies whose sole business is to create and service two-sided markets, typically using computer software and hardware to accomplish this Platform firms are today's version of an intermediary firm, which link a group of resellers with buyers. In a two sided market, an intermediary firm provides the services necessary to connect a group of sellers and a group of buyers. Sites that offer Super Bowl tickets for sale is an example of a platform firm because it provides the platform (in this example, the Web site and all of the programming and digital storage behind it) for the two groups that wish to be linked together).
Consumer Preference
Consumers are assumed to know the things they like and dislike. They are assumed to be able to rank the available alternative combinations of goods and services according to their ability to satisfy the consumer's preference. The ranking involves no more than ranking the alternatives as better than, worse than, or equally as good as one another. Rational Conditions → The conditions are, that a consumer's preference ordering or ranking be complete, transitive, and reflexive. (Cooter and Ulen, page 18 - The Theory of Consumer Choice and Demand)
Monitoring Costs (MBN27)
Costs that must be incurred to observe the behavior of a politician or other agent to whom responsibilities have been delegated.
The Effects of the Minimum Wage case (MBN13):
Currently, 1.3 million workers earn minimum wage, and a large portion of minimum wage earners (⅓) are teenagers from high-income households. Supporters: Prevents exploitation of employees ,Allows people to earn enough to support their families and themselves (earn a livable wage) Opponents: The higher the wage, the lower number of workers desired (e.g. min. wage increase from $6.55 to $7.25 caused 300,000 to lose jobs Hurts minority youths most & allows for greater opportunities of discrimination
Demand Curve
Demand Curve represents the inverse relationship (That is, when the price of x goes up, and I held constant, the amount of x that the consumer will purchase goes down, and vice versa) between price and quantity demanded; graphic representation, a negatively sloped line. The steepness of the demand curve is related to an important concept called the price elasticity of demand, or simply elasticity of demand. An economic measure of the change in the quantity demanded or purchased of a product in relation to its price change Price on the vertical axis (y), demand on the horizontal axis (x)
Ethanol Madness case (MBN27)
Ethanol used in gas is supposed to conserve resources and improve the environment but that is a lie but it does make certain people richer. ethanol. First, it is claimed that adding ethanol to gasoline reduces air pollution and so yields environmental benefits. A second argument advanced on behalf of ethanol is that it is "renewable," in that fields on which corn is grown to produce ethanol this year can be replanted with more corn next year. The third supposed advantage of ethanol is that its use reduces our dependence on imports of oil. Despite it being bad, it helps the economy. "Taxpayers and drivers put up little effective resistance to having their pockets picked. It may make for bad economics and lousy environmental policy, but it is classic politics." It's a classic illustration of how good politics routinely trumps good economics to yield bad policies.
Excludability and Nonexcludability
Excludable: A good for which it is possible to prevent consumers who have not paid for it from having access to it Non-excludable: Individuals cannot be excluded from using the good (pic)
Patent (MBN2)
Form of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention. A patent can generate a stream of royalty payment.
Biofuels (MBN27)
Fuels made from recently-living organisms or their by-products. The Supposed Virtues Of Ethanol: "The third supposed advantage of ethanol is that its use reduces our dependence on imports of oil. In principle, this argument is correct, but its impact is tiny, and the likely consequences are not what you might expect. Total consumption of all biofuels in the United States amounts to only 3 percent of gasoline and diesel usage. To replace the oil we import from the Persian Gulf with corn-based ethanol, at least 50 per-cent of the nation's total farmland would have to be devoted to corn for fuel."
Government Failure (Wiki) (Entire Reading)
Gov't failure is an economic inefficiency caused by a government intervention, if the inefficiency would not exist in a true free market Occurs when governmental action creates an inefficient outcome, where efficiency would otherwise exist Pareto improvement would help remedy Caused by: Imperfect information Human factor Influence of interest or pressure groups Political self-interest Policy myopia Government intervention and evasion Costs of administration and enforcement
Nice White Parents (podcast)
In Brooklyn there are three middle schools that white families tend to want to enroll their children in and because of that, the schools are at capacity. White families started looking for other schools, to enroll their children in and so the schools start to promote themselves to white families. The schools that the white families look into are POC schools, since the majority of the white population is enrolled within the three schools. Eventually one POC school is able to catch the eyes of white parents due to the French Program they decided to offer as requested from the white parents, so naturally the middle school starts to fill up with other white students. A man named Rob is a new white parent who has enrolled his child to the school and wants to fundraise 50K for the French Program. This starts a conflict with the PTA since all fundraising done by POC parents for the school is typically planned through them, they decide where to split the funding. Rob says that because the dorners want to specifically fund the French program the money wouldn't go anywhere else. There would be funding for that program and their students only, who are majority white students. Another concern that starts to rise is the experience of the few POC students who decided to join the French Program. The program is filled with white students who are already pretty decent in French and the class is taught by a white person who is used to having those types of students. This ends up making the POC students feel out of place and somewhat uncomfortable for not already being fluent in French. After many months pass, Rob realizes that he was not informed about the fact that the French Program was not what all kids wanted. "That happens a lot with White parents........White parents wielding their power without even noticing, like a guy wandering through a crowded store with a huge backpack, knocking things over every time he turns."
FIGURE 2.13 (look at the actual study guide the professor gave us to see what the graph is)
In game theory, the strategic form is a way of describing a game using a matrix. The matrix in figure 2.13 is the prisoner's dilemma, where two prisoners need to decide whether they are willing to confess a crime or to lie about it.
Kidneys For Sale reading (MBN8)
In the US, it is illegal to pay for organs for transplants. The US has a shortage of organs, people who need transplants die. Payment for organs would bring more organs to the market, the donor benefitting from compensation and the recipient donating from a longer life. Insurance would cover the cost of the organ. Taxpayers would save money because fewer people would need to go on dialysis which is far more expensive.
Incentives (MBN2, MBN6)
Innovation is driven by incentives: result of purposive behavior, motivated by the prospect that the rewards will exceed the costs If one has the comparative advantage in something, they have incentive to partake in that activity
Interpersonal Comparisons of Well-Being
Interpersonal comparisons of well-being are comparisons of people's preferences. These comparisons typically provide inconclusive results in that if people are choosing one product over another, they make available their list of preferences but not their degree to which they prefer their first choice.There is no way to quantify a consumer's want or amount of preference.
Kaldor-Hicks Efficiency
Kaldor-Hicks Efficiency is an improvement to the Pareto criterion calling for both winners and losers in a situation of change but requiring the winners to win more than the losers lose. This excess win gives those that benefit the ability to compensate the loss of the losers while still maintaining surplus gain. Though, this compensation, technically, does not have to be made.
Under alternatives, Bardach & Patashnik recommend analysts "model the system in which the problem is located." What types of models do they describe, and how do they work?
Market models: Equilibration through exchange: be able to understand the interaction of disaggregated suppliers and demanders to determine prices and the quantity of the good that is sold Useful for not only strict ideas of market but rather any type of service flow: understanding the flow of supply and demand in any application Production models: Identifying the parameters whose values, when they move out of a certain range, make the systems most vulnerable to breakdown, fraud and abuse, egregious diseconomies, and the distortion of intended purpose IEOR basically Conformity models: These models describe a process by which individuals adapt the attitudes and actions of other people around them Can help to improve the effectiveness of interventions (ex: socially desirable behavior + healthier behavior in a poster Basically leverage the tendency of people to think and act like people around them Social norms + peer pressure Evolutionary models: Describes a common process of change over time → improving a process with trial
Market Power
Market power refers to an entity's ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both. For more info, see "Monopoly and Market Power" above.
Nonmarket Failure
Nonmarket activities are those undertaken by governments and other institutions whose sources of revenue come principally from taxes, donations, or other non price sources, rather than from charging prices in markets (Wolf, page 115). Market failure is common, but nonmarket remedies for those failures may themselves fail.
What market failure(s) or feature(s) are prominent in MBN's "platform economy" chapter?
Oligopoly- Small number of producers or sellers share a market. Ie: StubHub and Ticketmaster are dominant firm That determines industry pricing. (MORE TO ADD)
What is the difference between the Pareto criterion and Kaldor-Hicks efficiency, and what is a good example of how the latter would work in practice?
Pareto Efficiency/Criterion is a state in which it is not possible to improve one target characteristic without having to worsen another at the same time If there is such a transfer, the reallocation is called Pareto improvement a Pareto optimum is societal situation in which it is not possible to increase the welfare of an individual by re-allocating resources without simultaneously reducing that of another individual criterion for the welfare optimum assumed that individuals are independent of each other in their ideas of utility (no demand interdependencies such as demonstrative consumption or bandwagon effects) and that benefits increase with increasing ownership of goods and factor quantities The inherent problem with using the Pareto Optimum as a welfare criterion is that the Pareto points cannot be compared without an additional welfare criterion largely limits any change, because it doesn't allow non-win-win interpersonal or intertemporal shifts and trade-offs Kaldor-Hicks Efficiency welfare criterion based on the idea of potential interpersonal compensation for reallocation of welfare in contrast to the Pareto criterion (without interpersonal benefit comparison), this compensation criterion attempts to assess changes in the welfare of a society as a whole in which the welfare of some individuals increase while that of others decrease Extends Pareto optimum by considering principle of compensation welfare optimum has not yet been achieved if welfare gains can be realised through subsequent allocation-neutral redistribution in the form of a compensation payment If the potential winners of a specific redistribution are able to compensate the potential losers through compensatory payments, the redistribution accompanied by compensation will increase welfare total welfare gains must therefore be large enough that even after the full compensation of the losers of redistribution at least a marginal positive net gain remains and consequently a pareto-superior situation is achieved Example: Building an airport Local residents and environment lose out (would not be Pareto efficient) Net gain and groups losing out could be compensated Compensation does not have to actually occur
Network Effects (MBN15)
Phenomenon whereby a good or service becomes more valuable when it is used by more people
Elastic, Inelastic, Unitary Elastic
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price Computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner (% chance in quantity) / % (change in price) > 1 Teslas as elastic demand Inelastic demand or supply curve occurs when the given percentage change in price causes a smaller percentage change in quantity demanded or supplied Milk as inelastic demand (% chance in quantity) / % (change in price) < 1 Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied (% chance in quantity) / % (change in price) = 1
Price discrimination (MBN17)
Selling at prices that do not reflect differences in marginal costs; different prices with the same marginal costs, for example, or the same prices with different marginal costs. Example: Econ Problem Set
Excess Demand
Shortage occurs when quantity demanded > quantity supplied Sell at higher prices to make higher profits Price increase stimulate quantity supplied and reduce quantity demanded Price rises until shortage is eliminated (graph)
Invention (MBN2)
Someone in the past created an invention. As the saying goes, however, inventions are "a dime a dozen"—they have little value in their raw idea form, just by themselves. Rather, innovation is necessary—that is, the transformation of something new, such as an invention, into something that benefits us. The technical novelty of the invention must be developed into the practical application that creates value for human beings. Innovations can either reduce the cost of producing what we already have—think telephone calls—or provide new goods and services—think the Internet.
Excess Supply
Surplus occurs when quantity supplied is greater than quantity demanded Amount producers want to sell > amount consumers want to buy Can result in lower prices to sell at lower price than not sell at all Price reductions can stimulate higher quantity demanded by inciting competition from other sellers (graph)
Keeping The Competition Out case (MBN18)
Taxicab medallions Companies hate competition because it takes away from potential profit. Getting the government involved is the best way to stifle competition Taxis are legally limited (1:600 people in NYC) and each taxicab medallion is $600,000. Driving out competition: Reduce the number of firms in an industry decreases the supply of the good → Driving up the price Firms benefit from high product prices and market share
Downward Slope (Demand Curve)
The Demand Curve is downward sloping. This is because of the law of demand → The law of demand states that there is an inverse proportional relationship between price and demand of a commodity. When the price of a commodity increases, its demand decreases. Thus, the demand curve is downward sloping from left to right. Example (real life application): Because of the downward slope, you can conclude that the consumer will buy more goods only when the price decreases.
Select the Criteria (B&P)
The criteria upon which a policy decision is made. What is important to consider... (social implications, etc.)
Equilibrium
The equilibrium price is the only price where the plans of consumers and the plans of producers agree where the amount consumers want to buy of the product, quantity demanded, is equal to the amount producers want to sell, quantity supplied. common quantity is called the equilibrium quantity
Marginal Tax Rate (MBN11)
The fraction of the last dollar of income that is paid in taxes.
Long Run
The long run is distinguished by the fact that all factors of production become variable. There are no longer any fixed costs. Established firms may expand their productive capacity or leave the industry entirely, and new firms may enter the business. Economic profits are zero in an industry that is in long-run equilibrium. Because this condition can occur only at the minimum point of the firm's average cost curve, where the average costs of production are as low as they can possibly be, inputs will be most efficiently used in long-run equilibrium. Thus, the condition of zero economic profits, far from being a nightmare, is really a desirable state.
What is a global oil-climate index supposed to accomplish, and what does it demonstrate relative to assembling some evidence?
The oil climate index is a metric that takes into account the total life cycle GHG emissions of individual oils (from extrapolation to end use). It allows investors, policymakers, the public, to understand the implications of their decisions on the climate before beginning operations or while they are in progress. It is important for policymakers to assemble evidence before making decisions. For example, the oil that is sold today is produced in a variety of ways meaning that some oil that is consumed is much more harmful than other batches of oil. Understanding this evidence may affect decision making.
Labor Force Participation Rate (MBN12
The percentage of the working age population who are members of the labor force. Labor force working-age population x 100
Market-Clearing Price (or Equilibrium Price) Maximizing
The price that clears the market when there is no excess quantity demanded or supplied; the price of which the demand curve intersects the supply curve. There is a vital connection between maximization and equilibrium. We characterize the behavior of every individual or group as maximizing something. Maximizing behavior tends to push these individuals and groups toward a point of rest, an equilibrium. They certainly do not intend for an equilibrium to result; instead, they simply try to maximize whatever it is that interests them. Nonetheless, the interaction of maximizing agents usually results in an equilibrium. The market-clearing or equilibrium price and quantity occur at the point of intersection of the aggregate supply and demand curves. At that combination of price and quantity, the decisions of consumers and suppliers are consistent
Market Share (MBN16)
The proportion of total sales in an industry accounted for by a specific firm of groups of firms in that industry.
Behavioral Economics
The study of psychology as it relates to the economic decision making processes of individuals. (ex: In their study, Cappelli and Won compared the GPAs of college students who had received need-based grants (which have no required repayments) with students who took out student loans. The students who received grants achieved higher GPAs than those who took out loans. The researchers interpreted their research results using behavioral economics. In essence, because a grant is a type of financial gift, it cre-ates a "sense of obligation to the giver that may make one feel uncom-fortable, at least until the obligation has been discharged." In this case, say the authors, "discharging the obligation" comes about when the recipients of such grants do well in college—as demonstrated by earning a higher GPA.)
Political Economy (MBN27)
The study of the causes and consequences of political decision making Chapter 27 poses the question: why do we mandate the use of and subsidize the production of ethanol if it doesn't protect the environment, conserve resources, or have any compelling foreign policy advantages? A critical component of what the government does provides an institutional structure necessary for the creation and retention of our total wealth.
Supply Curve (MBN14)
The supply curve is upward sloping. General Knowledge: Supply Curve = Graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis. In most cases, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related (i.e., as the price of a commodity increases in the market, the amount supplied increases). Supply curves can shift depending on external factors/conditions, Example: Federal Marginal Tax Rates Higher federal marginal tax rate → people start working less Lower federal marginal tax rate → create incentive for people to work harder and more Example: Ireland In Ireland, it is seen that the lower end of the income bracket, heavily relied on welfare programs. Marginal income tax rate was 120 percent if they went back to work (combination of income taxes as well as loss of benefits, etc) → lose incentive to get a job Implemented lower corporate tax rates and offered tax breaks on research and development → booming economy, brought in masses of jobs and advancements → tax revenues soared Moral of the supply curve and this chapter: Higher tax rates does not always mean higher tax revenues.
Moral Hazard
The tendency of an entity insulated from risk to behave differently than it would behave if it were fully exposed to the risk; when the agent is shielded from the costs associated with a certain behavior and therefore has an incentive to undertake a hidden action with adverse consequences to the principle. Moral hazard arises when the behavior of the insured person or entity changes after the purchase of insurance so that the probability of loss or the size of the loss increases. An extreme example is the insured's incentive to burn his home when he has been allowed to insure it for more than its market value. A more realistic example comes from loss due to theft. Suppose that you have just purchased a new sound system for your car but that you do not have insurance to cover your loss from theft. Under these circumstances you are likely to lock your car whenever you leave it, to park it in well- lighted places at night, to patronize only well-patrolled parking garages, and so on. Therefore, a premium that has been set without regard for the increased probability of loss due to moral hazard will be too low and thus threaten the continued profitability of the firm.
Flying the Friendly Skies? case (MBN3)
They say that airplanes are safer than cars because the people who operate airlines are not in it for fun. They claim that people want to reach their destinations safely, safety matters rather than the obscure,hard to measure reasons for that safety. For example consumers don't care about measuring the mental fatigue in jet engines. The economically efficient level of safety occurs when marginal cost of increasing safety just equals the marginal benefit of that increased safety. We know that the efficient level of safety will not be perfect safety because perfection is simply too costly to achieve.
For Whom The Roads Are Toll case (MBN24)
This chapter focuses on a wide variety of topics. The first is implementation of tolls to reduce few motorists to drive and stop congestion on the roads. There are 3 reasons why there aren't widespread tolls implemented in every country : 1. Toll collection is not free and until recently the costs were large enough to offset many benefits. Having staff at the poll booth caused congestion as well. 2. Pricing highway travel is sometimes unpredictable consequences of changes in cost of travel. Ie: countries and states implement tolls on lanes,so drivers tried to find routes so they could use without paying which contributed to congestion. 3. Most roads are owned by the government rather than private firms ex: in Hong Kong, motorists favor new road construction where non-motorist agree that tolls should be given the top priority.
Death By Bureaucrat case (MBN1)
This chapter is about the FDA how their history of releasing drugs has been complicated. The 1962 Amendment increased the price to make a drug and slowed the process of release. This led to Type I and II error, when a product is released sooner than expected it can end up being a false positive and end up being risky or ineffective (I), when they decide to be more careful and take longer, it can end up risking those who need treatment immediately, a false negative (II). How much safety we want is based on marginal benefits (type 1) and marginal cost (type 2). Overall, polies always have unplanned consequences so benefits tend to be less than anticipated.
Cost (Total, Marginal)
Total Cost = Describes the total economic cost of production. It is composed of variable, and fixed, and opportunity costs. Marginal Cost = The change in total costs that arises when the quantity produced changes by one unit; the cost of producing one more unit of output. A constrained maximum, or any other economic optimum, can be described as a point where marginal cost equals marginal benefit. Example: Marginal Cost of Pollution Reduction (Page 23)
Market Failure
When the allocation of goods and services is inefficient, this can lead to a loss of social welfare. General equilibrium is, in welfare terms, such a desirable outcome that it would be helpful to know the conditions under which it will hold. Stripped of detail, the essential condition is that all markets are perfectly competitive. We can characterize the things that can go wrong to prevent this essential condition from being attained in a market. These are the four policies that can potentially correct these failures, theoretically: 1. Monopoly and Market Power 2. Externalities 3. Public goods 4. Severe informational asymetries
Market Equilibrium
When the quantity supplied is equal to the quantity demanded. Any more supply = surplus, any more demand= shortage.
Pareto or Allocative Efficiency
a state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off; an allocation such that nobody can be made better off without harming someone
Efficiency
an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency Optimal amounts of good and services are being produced and consumed goods are produced at their lowest possible cost, as are the variable inputs of production he economy is getting as much benefit as possible from its scarce resources, and all the possible gains from trade have been achieved Competitive market operating at equilibrium is efficient when it is impossible to improve the situation of one party without imposing a cost on another