discussion 12,13 Flashcards
Marginal social cost:
The marginal private costs plus the costs of the externality associated with the production
Marginal social benefit:
the marginal private benefits plus the benefits of the externality of consuming the good
Efficient outcome:
P = MC (MC intersect D)
Socially Efficient Outcome:
The optimal level of an activity in society occurs when the marginal social costs of this activity equal to the marginal social benefit of this activity.
How to make economic agents internalize externalities
Taxing our way to MSC = MSB
Auctioning rights to control sound level to get to MSC = MSB
Post-tax Income
labor income + income from investments and savings + income from entrepreneurial talent + in-kind income - taxes
In-kind income:
transfer payments from government, charity, family members,
friends
- income from entrepreneurial talent:
profit
Difference between Income and Wealth
Income: a cash flow (yearly income, monthly income) Wealth: assets - liabilities
asset = financial capital + human capital Wealth is the accumulation of income.
Lorenz Curve
Used to analyze distribution of income. The closer a Lorenz curve lies to the 45 degree line, the more equally income is distributed.
Monopsony:
a market with a single buyer
Marginal Factor Cost (MFC):
the additional cost to a firm of hiring another worker.
A monopsonist hires where MFC
Demand.
The MFC is analogous to the MR on a monopoly graph
When you hire one more worker and pay them more, you have to pay everyone a new higher wage.
Minimum Wage with Monopsony
If the government set the minimum wage to the competitive price, they have effectively changed the MFC from being upward sloping to being constant.
