All the econ stuff
WTF is Kaldor Hicks criterion?
"A policy should be adopted if those who gain COULD fully compensate those who will lose and still be better off" Benefits > Costs NB > 0
So WTF's Potential Pareto Decision Rule for CBA?
"Potential Pareto efficiency rule": Adopt only policies that have a positive net benefit (Gains > Losses, Benefits > Costs)
The Graph of a Demand Curve results in:
A Negative Downward slope at all times.
What does Change in Demand really mean?
A Shift in Demand.
What does Change in Supply really mean?
A Shift in Supply.
Defense for Using only Potential, not Actual Pareto Efficiency Rule?
-By always choosing policies with positive net benefits, society maximizes wealth -Richer societies have more capacity to help poorer members of society, etc. -Likely that different policies will have different winners and losers - effects will average out -If more equal distribution of weight is the goal, then possible to address this through tax system or welfare policies
So what's the problems with actual Pareto efficiency?
-Difficult to measure costs and benefits for each person -Administrative cost of making transfers high -Compensation payments would distort investment and work behavior of individuals -Incentive for people to overstate costs
WTF can demand CBA?
-Government regulatory changes, CBA/RIA mandatory if cost over $100 million -Courts (Exxon, antitrust cases) -Development/Funding agencies (Value for Money Analysis, ROI) -Progressive interest groups/fundraising
What is a Demand Curve Shift?
A Change that places the Demand Curve up/down from its original position on the graph.
What is a Supply Curve Shift?
A Change that places the Supply Curve up/down from its original position on the graph.
What is an Inferior Good?
A Good that is negatively related to Income.
What does Change in Quantity Demand?
A Movement along the Demand Curve.
What does Change in Quantity Supply?
A Movement along the Supply Curve.
Late Mover
A firm that responds to a competitive action a significant amount of time after the first mover's action ad the second mover's response.
Second Mover
A firm that responds to the first mover's competitive action, typically through imitation.
First Mover
A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.
What is a Normal Good?
A good that is positively related to Income.
What are Markets?
A group of buyers and sellers of a particular product.
What is an Oligopoly?
A market containing a few sellers and buyers, product is the same (i.e. cellphone companies).
What is a Perfect Competitive Market?
A market that contains many buyers and sellers, No Market Power, Price Takers on an identical good.
What is a Monopolistic Competition?
A market that contains many sellers, and differentiated products.
What is a Competitive Market?
A market with MANY buyers and sellers, and portrays a negligible effect on price.
What is a Monopoly/Monopsomy?
A market with the ultimate power to be the ONLY seller in the economy.
Strategic Action or Response
A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.
Tactical Action or Response
A market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse.
Demand Curve Shift: What are Substitutes?
A mutual relationship between two goods. When the price of one good INCREASES, the price of the other good also INCREASES, which shifts Demand Curve to the Right.
What DOES NOT cause a Demand Curve Shift?
A no Change in Price affecting Quantity factor.
What DOES NOT cause a Supply Curve Shift?
A no Change in Price affecting Quantity factor.
Demand Curve Shift: What are Complements?
A parasitic relationship between two goods. When the price of one good INCREASES, the price of the other good DECREASES, which shifts the Demand Curve to the Left.
Competitive Response
A strategic of tactical action the firm takes to counter the effects of a competitor's competitive action.
Competitive Action
A strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position.
What is a Demand Schedule?
A table that shows the relationship between the price of a good and the quantity demanded.The Higher the Price, the Lower the Demand and therefore, less product is sold.
What is a Supply Schedule?
A table that shows the relationship between the price of a good and the quantity supplied. The Higher the Price, the Higher the Supply and therefore, the more Product is Sold.
Value of a good or service?
Actual money spent on it + Consumer Surplus (total gray area under the curve)
WTF is Present value?
Aggregate costs or benefits over the different years, convert all to a common metric by discounting -
Competitive Dynamics
All the competitive behaviors--that is, the total set of actions and responses taken by all firms competing within a market.
The Graph of a Supply Curve results in:
An Upward Positive Slope at all times.
discuss Pareto efficiency
An allocation of goods is Pareto efficient if no alternative allocation can make at least one person better off without making anyone else worse off An allocation of goods is inefficient if an alternative allocation can be found that would make at least one person better off
Demand Curve Shift: What is Taste?
Anything that causes a shift in tastes toward a good will INCREASE Demand for that good, which shifts the Demand Curve to the Right.
WTF is CBA applicable to?
Applicable to the entire range of government and public sector programs and policies/regulations, including social programs, physical infrastructure, environmental and safety regulations
What is Equilibrium Quantity?
When Quantity Supplied and Quantity Demanded are at Equilibrium Price. In which prices continue to fall until market reaches equilibrium.
Analyzing Changes in Equilibrium Step 2:
Decide in which direction the Curve shifts.
Analyzing Changes in Equilibrium Step 1:
Decide whether Supply or Demand Curve shifts or Both.
Market Dependence
Denotes the extend to which a firm's revenues or profits are derived from a particular market.
WTF is consumer surplus?
Difference between what consumers are willing to pay for a good or service relative to their actual expenditure
Implicit costs can be borne on others. Give examples!
Donated supplies, labor, externalities (pollution, health consequences) Donated supplies or labor could have been used for other purposes Time lost doing something could have been used for doing something productive
Key Factor in Determining Demand
Each good or service has its own special characteristics that determine the quantity people are willing and able to consume.
What is Shortage?
Excess Demand, when the Quantity Supply (qS) is LESS then the Quantity Demand (qD). In which Prices continue to rise until market reaches equilibrium.
What is Surplus?
Excess Supply, when the Quantity Supply (qS) is GREATER the Quantity Demand (qD).
Quality
Exists when the firm's goods or services meet or exceed customers' expectations.
Give example of Opp Cost of attending College
Explicit costs: Tuition, books, housing, food Implicit costs: Lost salary during time spent studying, interest on tuition money
Demand Curve Shift: What are Expectations?
Factors that affect consumer buying. Usually influenced by Media and Health Industries. Can shift the Demand Curve Left of Right.
CBA vs Financial Statement Analysis?
Financial analysis focuses on financial outlays and receipts associated with an investment CBA is concerned with social costs and social benefits; often quite different from simple financial outlays and receipts (eg. externalities like environmental/health impacts)
Competitiors
Firms operating in the same market, offering similar products, and targeting similar customers.
Standard-cycle Markets
Markets in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly.
When Income Increases, some goods previously bought in the past become:
Inferior Goods
What is Market Demand?
Is a Comparison between 2 sellers to find the market price of a good. Formula: a(1) +a(2) = a(m)
What is Market Supply?
Is a Comparison between 2 suppliers to find the market supply of a good. Formula: a(1) +a(2) = a(ms)
What does it mean to be Perfectly Competitive?
It means to be Price Takers.
What does the Change in Price do to the Demand Curve?
It moves ALONG the Demand Curve, but no shift.
What does the Change in Price do to the Supply Curve?
It moves ALONG the Supply Curve, but no shift.
What happens when Income increases for an Inferior Good?
It shifts the Demand Curve to the Left (-)
What is the effect of a Normal Good to the Demand Curve?
It shifts the Demand Curve to the Right (+)
Discuss Social Discount Rate
Lots of theories/disagreement on what rate to use Depends on agency/sector Projects with long-term impacts usually use lower rates
Fast-cycle Markets
Markets in which the firm's capabilities that contribute to competitive advantages aren't shielded from imitation and where imitation is often rapid and inexpensive.
WTF are examples of market failures?
Monopoly Externalities Public Goods
What's the real world deal with Pareto efficiency? Why is adopting ONLY Pareto efficient programs some stupid fairy tale?
Most policies don't create only Pareto improvements, there are winners and losers (Ex. highway construction, regulation of pollution)
talk about NPV equation
NPV (Net Present Value) = PV(Benefits) - PV(Costs
Inputs (resources required to implement the policy) should be valued at
OPPORTUNITY COST! Consisting of both explicit costs (i.e. dollar cost) and implicit costs (i.e. costs not requiring a money payment)
Multimarket competition
Occurs when firms compete against each other in several product or geographic markets.
Why discount?
People prefer to consume now rather than later Resources could have been invested (opportunity cost)
Purpose of CBA?
Purpose of CBA: to assess the case for intervention and guide that intervention
WTF is CBA?
Systematic process for calculating and comparing benefits and costs of a project, decision or government policy Quantifies in monetary terms the value of all the consequences of a policy (costs and benefits) Assesses whether the benefits of a proposed policy or project outweigh its costs
What Factors affect the Demand Curve, causing a Shift?
Taste, Expectations, Complements, Substitutes, Income and # of Buyers.
What Factors affect the Supply Curve, causing a Shift?
Technology, Input Prices (i.e. Wages), # of Sellers, and Expectations.
What happens when there is a Decrease in Demand?
The Demand Curve shifts towards the Left.
What happens when there is an Increase in Demand?
The Demand Curve shifts towards the Right.
What is Quantity Supplied (qS)?
The amount of good sellers are willing and able to sell.
What is Quantity Demand (qD)?
The amount of good that buyers are willing to spend on.
Awareness
The degree to which a firm and its competitors understand their mutual interdependence.
Resource Similarity
The extent to which the firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount.
Motivation
The firm's incentive to attack or respond.
Competitor Analysis
The first step the firm takes to be able to predict its competitor's actions and responses.
What happens when there is a Decrease in Supply?
The Supply Curve shifts towards the Left.
What happens when there is an Increase in Supply?
The Supply Curve shifts towards the Right.
Market Commonality
The number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each.
Competitive Rivalry
The ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position.
Competitive Behavior
The set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position.
What is the Law of Demand?
When Price FALLS, Demand RISES. When Price RISES, Demand FALLS.
What is the Law of Supply?
When Price RISES, Supply RISES. When Price FALLS, Supply FALLS.
What are the types of Price of Related Goods?
They are Substitutes and Complements.
Slow-cycle Markets
Those in which the firm's competitive advantages are shielded from imitation commonly for long periods of time and where imitation is costly.
Analyzing Changes in Equilibrium Step 3:
Use Supply-Demand diagram to see how the shift changes Equilibrium Price and Quantity.
What is Equilibrium Price?
When P (price) equates with Quantity Supplied with Quantity Demand.
What is Equilibrium?
When P (price) has reached Quantity Supply (qS) and Quantity Demand(qD). (An Intersection of Supply and Demand Curves)
Consumer Preference
a difficult factor to measure such as he number of pizzas people will purchase depends very much on whether they like pizza. It also depends on the prices for alternatives such as hamburgers or spaghetti.
Independent Variables Determining Demand
consumer preferences, prices of related goods and services, income, demographic characteristics such as population size, and buyer expectations.
NPV rule of thumb?
positive, pick the highest one
Demand Schedule
shows the quantities of a good or service demanded at different prices during a particular period, all other things unchanged.
Purpose of public policy?
to address market failures and maximize social welfare with limited resources
