Chapter 3 Flashcards
What factors shift demand curve?
Income
Price of related goods
Consumer preferences
Consumers’ expectations
Number of consumers
What happens to the price as demand increases?
Price decreases
What happens to the price as supply increases?
Price increases as well
What factors would shift the supply curve?
Price of input goods/services
Production Technology
Natural Disruption
Number of firms in market
Producers’ expectations
What can the supply curve be considered as?
Marginal Cost Curve
What can the demand curve be considered as?
Marginal Benefit Curve
What is Marginal Benefit
Additional benefit of consuming one more unit of good/service
What is marginal cost?
Additional cost of producing one more unit of a good/service
What is consumer surplus?
Difference b/w the maximum amount a person is willing to pay for a good and its current market price?
Willingness to Pay
Maximum amount of money that people are willing to pay for a good/service to increase their wellbeing
What is producer surplus?
Difference b/w the current market price and the full cost of production for firm
How to find total surplus?
CS + PS
What are externalities?
Impacts that affect well-being of those outside of market activites
What is a negative externality?
An external cost that occurs if an activity creates harm/discomfort for those not involved such as pollution
What is a positive externality?
An external benefit that occurs if an activity confers benefits on those not involved in activities, example: People who get vaccination shots
What is the socially optimal level of production and price
social marginal benefit = social marginal cost
What is the Pigovian Tax?
Per-unit tax equal to the external damage caused by an activity ; polluter pays principle
What is the Coase Theorem?
Proposition that if property rights are well defined and there are no transaction costs, efficient allocation can happen even with externalities
Limitations to Coase Theorem
Free Rider Effect
Holdout Effect
Equity
Environmental Impacts
Ability to preserve open spaces
Free Rider Effect
Tendency to not pay one’s share of the costs but still attempt to receive the benefits
How to find consumer surplus?
(Price(d) - eq. price ) * quantity * 1/2
How to find producer surplus?
(Eq. price - Price(s))* quantity * 1/2
How to find externality?
External Cost * Quantity
How to find total social net benefit?
CS + PS - Externality
