Exam 1 Vocabulary Flashcards
Economic Efficient
when there is not a welfare loss (no overproducing or underproducing) maximizing net benefits
Efficiency
marginal cost equals marginal benefits (maximizing the benefits to society)
Undersupplying
when marginal benefits is greater than marginal costs
Oversupplying
when marginal benefits is less than marginal costs
Producer Surplus
the benefit of production
Lower triangle against y-axis
Consumer Surplus
the benefit of consumption (the highest willingness to pay minus the price they actually paid)
Upper triangle against the y-axis
Net Benefit
the sum of producer and consumer surplus that is the benefit of that market
Abatement
a reduction of pollution
Willingness to pay (WTP)
what you are willing to give up in order to preserve an additional unit
The maximum amount a consumer is willing to pay for a good or service
Willingness to accept (WTA)
how much you are willing to accept if a unit is developed
The minimum amount a seller is willing to accept to sell that same good or service
Pareto Efficiency
a policy is Pareto efficient if and only if no number of society could be made better off by an alternate policy without making at least one person worse off
Pareto Improvement
makes at least one person better off without making anyone worse off (very rare in reality)
Keller -Hisck Criteria (“potential Pareto”)
chose Policy A if it makes a least one person better off without making anyone worse off if suitable transfers were made from the winners to the losers
Market
a decentralized collection of buyers and sellers whose interactions determine the allocation of a good or set of goods through exchange
Externality
a cost or benefit that affects a party who did not choose to incur that cost or benefit
Rival Goods
may only be possessed or consumed by a single user
Non-Rival Goods
may be possessed or consumed by many users
Excludable Goods
one user can prevent another user from using that good
Non-Excludable Goods
one user cannot prevent another user from using that good
Private Goods
goods that are rival and excludable
Candy bar, shoes
Pure Public Goods
goods that are non-rival and non-excludable (shared by all, owned by no one)
Clean air, scientific knowledge
Open-Access Resources
goods that are rival and non-excludable
Deep-sea fishery, common pool oil field
Club Goods
goods that are non-rival and excludable
Cable TV, country club
Nash Equilibrium
a situation in which a player will continue with their chosen strategy, having no incentive to deviate from it, after taking into consideration the opponent’s strategy.
No participant gains by a change in strategy
Opportunity Costs
what you give up by doing one thing instead of another
Negative Externality
is posing a cost on others that is invisible to the others but it is external to their decision making
Public Goods
are environmental amenities enjoyed by lots of people whether or not those people help pay for them
Free Riders
are those that rather than helping to provide the public good themselves they merely enjoy what others provide for them
Tragedy of the Commons
is when a natural resource is made available to all so individuals will tend to exploit the resource far beyond the optimal level.
Social Surplus
equals the sum of consumer and producer surplus minus the damage from pollution
Deadweight Loss
are losses not transferred from one group to another but rather losses to society as a whole
