Econ 110 BYU

Tradable permits

allows some companies to purchase permits to have more pollution where other companies can forgo the pollution. Allows for competition.

Internalizing the externality

altering incentives so that people take account of the external effects of their actions (Like a tax on pollution)

Signaling

an action taken by an informed party to reveal private information to an uninformed party

Screening

an action taken by an uninformed party to induce an informed party to reveal information

Collusion

an agreement among firms over production and price

Marginal Product

any input in the production process is the increase in the quantity of output obtained from one additional unit of that input.

Average total cost

Total cost divided by the quantity of output

Average Revenue (PC)

Total revenue (P x Q) / amount of output (Q)

Marginal Revenue (PC)

= Price, e change in total revenue from the sale of each additional unit of output.

Sunk Cost

A cost that has already been committed and cannot be recovered

Cartel

A group of firms acting in unison

Cost-benefit analysis

A study that compares the costs and benefits to society of providing a public good (some people have different opinions as to whether a new highway should be built)

Nominal GDP

Based on CURRENT PRICES for goods

The output effect

Because price is above marginal cost, selling one more gallon of water at the going price will raise profit.

Command and Control policy

Government banning a certain amount of pollution to be produced. (enforcing a limit)

Competitive Market

Many buyers and sellers Goods are largely the same Firms can freely enter and exit market

Monopolistic competition

Many sellers Product Differentiation Free entry and exit Like books,DVDs,restaurants

Barriers to entry

Monopoly resources: Diamonds Government regulation: (post-office) The production process: single firm can produce output at a lower cost than can a larger number of producers. (natural monopolies-electric)

Negative externalities vs. Positive

Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a smaller quantity than is socially desirable. To remedy the problem, the government can internalize the externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities

Excludable

People can be prevented from using the good. (me and my ice cream, I can tell you NO)

Solving Moral Hazard

Principal does these things to help. 1) Better Monitoring-security cameras 2) High Wages-Better wage=less likely to leave. 3) Delayed Payment-(year-end bonus)

The Price effect

Raising production will increase the total amount sold, which will lower the price of water and lower the profit on all the other gallons sold

Corrective taxes

Taxes enacted to deal with the effects of negative externalities

Total Cost

The amount that the firm pays to buy inputs

Total Revenue

The amount that the firm receives for the sale of its output

Predatory Pricing

The price cuts may be intended to drive Roadrunner out of the market so Coyote can recapture its monopoly and raise prices again. Such behavior is called predatory pricing.

Exit and Entry

The process of entry and exit ends only when price and average total cost are driven to equality.

Diminishing marginal product

The property whereby the marginal product of an input declines as the quantity of the input increases

Coase Theorem

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own (Dick's dog bothers Jane- she is willing to pay so much to have it removed and Dick values dog so much)

Efficient scale

The quantity of output that minimizes average total cost

Production Function

The relationship between quantity of inputs used to make a good and the quantity of output of that good

Real GDP

Uses as Base year price for every consecutive year and helps us understand more about the difference in quantity produced.

Economies of scale

When long-run average total cost declines as output increases

Diseconomies of scale

When long-run average total cost rises as output increases

Tying

When producers package two things together to take advantage of customers (putting Ironman and Hamlet together in theatres)

Equation of GDP

Y (GDP) = C (consumption) + I (investment) + G (government purchases) + NX (net exports (imports-exports)) C+I+G+NX

Intermediate good

a good or service that is used in the process of producing other goods and services

Oligopoly

a market structure in which a few large firms dominate a market

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100 (nominal / real ) x 100

Free Rider

a person who receives the benefit of a good but does not pay for it.

Moral Hazard happens when...

a person, called an agent, is performing some task on behalf of another person, call the principal.

Competitive Firm Supply Curve

because the firm's marginal-cost curve determines the quantity of the good the firm is willing to supply at any price, the marginal-cost curve is also the competitive firm's supply curve.

Private solutions

beekeeper and apple orchard (they might make an agreement through contract to help each other out.)

Private goods

both excludable and rival in consumption. (ice cream)

Rival in consumption

does my use of the good reduce another person's ability to use it. (fishing, not as many fish for other people) (my ice cream, I eat it and you can't eat it too)

Net Exports

equal the foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports

Median Voter Theorem

everything is based upon the median...where the populations vote is split 50/50

Club Goods

excludable but not rival in consumption (cable TV-can tell me NO, but everyone can have it and if you have it, it doesn't limit my possibility of having it.)

Exit (Long run)

firm exits the market if the revenue it would get from producing is less than its total costs.

Economic Profit

firm's total revenue minus all the opportunity costs (explicit and implicit) of producing the goods and services sold.

Profit

firm's total revenue minus its total cost

Accounting Profit

firm's total revenue minus only the firm's explicit cost

Average fixed cost

fixed cost divided by the quantity of output

Subsidies

grants of money to help producers with positive externalities (education)

Long Run Equilibrium

in the long-run equilibrium of a competitive market with free entry and exit, firms must be operating at their efficient scale.

Government Purchases

include spending on goods and services by local, state, and federal governments

social cost

includes the private costs of the aluminum producers plus the costs to those bystanders affected adversely by the pollution

Implicit Costs

indirect, non-purchased, or opportunity costs of resources provided by firm

Explicit Costs

input costs that require an outlay of money by the firm

Adverse Selection

is a problem that arises in markets in which the seller knows more about the attributes of the good being sold than the buyer does.

Nash Equilibrium

is a situation in which economic actors interacting with one another each choose their best strategy given the strategies the others have chosen.

Gross Domestic Product (GDP)

is the market value of all final goods and services produced within a country in a given time period.

Dominant strategy

it is the best strategy for a player to follow regardless of the strategies pursued by other players.

Property Rights

items of value that have an owner to help with the legal authority to control it.

Public Goods

neither excludable nor rival in consumption. (playground)

Price Discrimination

practice of selling the same good at different prices to different customers movie tickets,airline prices,discount coupons,financial aid,quantity discounts

Resale Price Maintenance

price fixing imposed by a manufacturer on wholesale or retail resellers of its products to deter price-based competition

Common Resources

rival in consumption but not excludable. (fish-you can't stop me from fishing, but if you fish a lot then that limits my amount that I can have) (congested roads)

Tragedy of the Commons

situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community (town sheep field)

Consumption

spending by households on goods and services, with the exception of purchases of new housing

Marginal cost

the amount that total cost rises when the firm increases production by 1 unit of output (Change in total cost / change in quantity)

Transaction costs

the costs that parties incur in the process of agreeing to and following through on a bargain (dick and jane)

Condorcet paradox

the failure of majority rule to produce transitive preferences for society

Shut down (short run)

the firm shuts down if the revenue that it would earn from producing is less than its variable costs of production.

Profit-maximization of monopoly

the monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve

Investments

the purchase of goods that will be used in the future to produce more goods and services. It is the sum of purchases of capital equipment, inventories, and structures.

Political Economy

the study of government using the analytic methods of economics

Game theory

the study of how people behave in strategic situations

Moral Hazard

the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior.

Average variable cost

variable cost divided by the quantity of output.

Monopoly

when firm is the sole seller of its product And if its product does not have close substitutes