CH 5 Flashcards
Economic profit
The difference between total revenue and total cost
Net benefit
The total benefit of an activity minus its opportunity cost
Marginal benefit
The amount by which an additional unit of an activity increases it’s total benefit
Marginal cost
The amount by which an additional unit of an activity increases it’s total cost
Marginal decision rule
If the marginal benefit of an additional unit of an activity exceeds the marginal cost, the quantity of the activity should be increased. If the marginal benefit is less than the marginal cost, the quantity should be reduced
Constraint
A boundary that limits the range of choices that can be made
Deadweight loss
The loss in net benefits resulting from a failure to carry out an activity at the most efficient level
Efficient
The allocation of resources when the net benefits of all economic activities are maximized
Property rights
A set of rules that specify the ways in which an owner can use a resource
Exclusive property right
A property right that allows it’s owner to prevent others from using the resource
Transferable property right
A property right that allows the owner of a resource to sell or lease it to someone else
Efficiency condition
A situation that requires a competitive market with well-defined and transferable property rights
Consumer supplies
The amount by which the total benefits to consumers from consuming a good exceed their total expenditures on the good
Market failure
The failure of private decisions in the marketplace to achieve an efficient allocation of scarce resources
Public good
A good for which the cost of exclusion is prohibitive and for which the marginal cost of an additional user is zero
Private good
A good for which exclusion is possible and for which the marginal cost of another user is positive
Free riders
People or firms that consume a public good without paying for it
External cost
A cost imposed on others outside of any market exchange
External benefit
An action taken by a person or firm that creates benefits for others in the absence of any market agreement
Common property resources
Resources for which no property rights have been defined
