micro exam 3
negative externality solution
- Market produces where 𝑀𝐵 = 𝑀𝑃𝐶 (produce too much) -To maximize efficiency, should produce where 𝑀𝐵 = 𝑀𝑆𝐶
monopsony power
- a business is the sole buyer - pay lower wages
nonrival
A good for which one person's use doesn't subtract from another's.
rival good
A good for which your use of it comes at someone else's expense.
club good
A good that is excludable, but non-rival in consumption.
common resources
A good that is rival and also nonexcludable
natural monopoly
A market in which it is cheapest for a single business to service the market
monopolistic competition
A market with many small businesses competing, each selling differentiated products.
public good
A nonrival good that is nonexcludable and hence subject to the free-rider problem.
cap and trade
A quantity regulation implemented by allocating a fixed number of pollution permits, which can then be traded.
corrective tax
A tax designed to induce people to take account of the negative externalities they cause.
collusion
An agreement by rivals to limit competition with each other.
nash equilibrium
An equilibrium in which the choice that each player makes is a best response to the choices other players are making.
product differentiation
Efforts by sellers to make their products differ from those of their competitors.
The marginal revenue product is calculated as
MPL × P.
human capital
The accumulated knowledge and skills that make a worker more productive.
market power
The extent to which a seller can charge a higher price without losing sales
marginal private cost
The extra cost paid by the seller from one extra unit.
marginal product of labor
The extra production that occurs from hiring an extra worker.
What changes in a labor market graph if the workers of a company form a union?
The labor market supply curve shifts to the left.
socially optimal quantity
The outcome that is most efficient for society as a whole
tradgedy of the commons
The tendency to over-consume a common resource. - when rival goods are non-excludable
statistical discrimination
Using observations about the average characteristics of a group to make inferences about an individual member of the group
free rider problem
When someone can enjoy the benefits of a good without bearing the costs.
nonexcludable
When someone cannot be easily excluded from using something.
price taker
a buyer or seller who cannot affect the market price
Prisoner's Dilemma
a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off
oligopoly
a market dominated by a small number of sellers
Diminishing returns to an input occur when
at least one input is fixed.
marginal private benefit
benefit for buyer from one extra unit.
marginal external benefit
external benefit to bystanders from one extra unit.
marginal external cost
external cost imposed on bystanders from one extra unit.
Coase Theorem
externality problems can be solved by private bargains.
corrective subsidy
induce people to take account of the positive externalities they cause.
marginal social benefit
marginal private (buyer) benefit + marginal external (neighbor) benefit
marginal social cost
marginal private cost + marginal external cost
marginal revenue product
marginal revenue from hiring an additional worker.
Substitution effect
measures how people respond to a change in relative prices when the wage rises.
negative externalities are over or under produced?
overproduced
jobs with desirable attributes pay more or less?
pay less
price discrimination
selling the same product at different prices
positive externality
side effect that benefits bystanders
negative externality
side effect that harms bystanders
reservation price
the max price a customer will pay; = marginal benefit
positive externalities are over or under produced?
underproduced
perfect competition
when competitors sell an identical good, there are many buyers, and many sellers
monopoly
when there is only one seller in the marker
