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