Homework 2 Definitions Flashcards
Open access equation
OA = p * q(n) = (1+r) * c
Efficiency equation
Eff = p * q(n) + p * q ‘ (n) * n = (1+r) * c
When the welfare of some agent depends in part activities under the control of some other agent, and there is no means of compensation for the benefit or harm resulting
Externality
Markets produce too much; “negative externality”
External cost
The total cost to society for producing one additional unit of a good
Marginal social cost
The total benefit to society for producing one additional unit of a good
Marginal social benefit
Pigouvian tax
A tax on output equal to the MEC
My use of a good reduces the quantity of quality available for others to use
Rival (divisible)
My use of a good does not reduce quality or quantity
Non - rival (indivisible)
Owner can prevent others from using a good
Exclusive
Non- excludable
Owner cannot exclude anyone from using a good
A rival and excludable good
Private good
A non rival and non excludable good
Public good
Property owned by individuals or a group of individuals
Private property
Accessible by open access and shared resources characterized by non- exclusivity and rivalry
Open access resource
Refer to entitlements divining the rights, privileges, and limitations for use of a resource
Property rights
All resources privately owned and all entitlements are completely specialized
Universality
All benefits and costs accrue to owner or user only
Exclusivity
All property is transferable in voluntary exchange
Transferability
Rights protected by law are not subject to arbitrary seizure
Enforceability
Opportunity cost of making transactions
Transactions costs
If property rates are clearly assigned, and transactions are costless, then private negotiation between effective parties will lead to an efficient resource allocation, regardless of the initial assignment of property rights
Coase theorem
Total benefit minus total cost
Net benefit
