2 Flashcards
Average cost pricing
When price equals average cost. Their are neither profits or losses, the enterprise just breaks even. The operation doesn not need to worry about a deficit.
How can G solve an externality problem by assigning property right?
Coase theorem: provided that transaction costs are 0, an efficient solution to an extenality problem is achieved as long as someone is assigned property rights, independent of who is assigned whose rights. –> you bargain!
How should the value of time be included in CBA?
we need to know how much money! Estimate the value of time by the “Theory of leisure-income choice”. People who have control over amount of work, do so up to the point where the subjective value of time leisure is equal to income gain from one hour of work. The after-tax wage can be used to value the time saved.
Two asymmetric-information problems that could lead to a break down in the private health market
Adverse election: an individual knows her own illness risk but the insurer doesnt. The uninformed side of the deal gets exactly the wrong people trading with it.
Moral Hazard: when obtaining an adverse outcome leads to changes in behaviour that increase the likehood of the outcome. Risky behaviour, not looking the door because they know they will be compensated if anything gets stolen.
Strategies for reducing Moral hazard
- Deductible: out of pocket payment of health costs before the inrurance company pays
- Co-payment: a fixed amount paid by the insured for a medical service
- Co- insurance: a % of the cost of a medical service that the insured must pay
State Median Voter Theorem
“As long as all preferences are single peaked (and several other conditions are satisfied), the outcome of majority voting reflects the preferences if the median voter”.
Budget constraint
the representation of bundles which a consumer can choose from, given his income and prices he faces.
Indifference map
the collection of all indifference curves
