Lektioner D.N. Flashcards
Market failure?
Free market can create ‘wrong’ level of production - many resources lack a market. // Also price fail to account for all costs/benefits when producing & consuming a good/service.
Law of demand?
The price increases = demand is lower.
Demand Curve?
Shows total demand on the market.
Substitute?
Consumer respond to price increase, bying less & satisfy desire by buying other cheaper product.
Complementary?
Products consumed together. Higher prices on butter leads to lower demand on bread.
Marginal cost?
Cost for one extra produced unit. Can increase or decrease. Usually cost is divided over scale/big volumes.
Supply curve?
Price of commodity + Quantity = positively related.
The invisible Hand?
Market find their own price & input, without any intervention.
Consumers Surplus?
WTP more than actual price, $2.
WTP is $3 = cons. Surplus is $1.
Used to analyse welfare effects of policy instruments.
Producers Surplus?
Sells Coffe for $2, but can actusell it for $1. But gets $2. Surplus = $1.
Pareto effect?
Nobody can get better of, without making anybody else, being worse of.
Efficiency?
The market Equilibrium is the point that maximize total welfare - P & C welfare together. The concept is about total effects, distribution not included.
Marginal cost?
Cost for 1 extra unit produced. Big volumes can reduce marginal cost.
Coase Theorem?
The problem of externalities depends on unclear property rights. A start to Env problems, who owns/ are responsible for nature? The market can’t handle rights without instruments/ defined social cost for Env. // If property rights can be defined + transactional costs low = Env resources can be efficiently managed, without Gov intervention.
Negative Externalities?
If private cost are lower than social costs, production/consumption will be larger than is optimal for society.
Taxes can be added to cover. Ex car fees. // Also:
When a person/firm NOT bear all cost, receive all benefits of consuming/producing: and
- a third party (C or P) is affected by action of others.
Market is failing, price/cost don’t include social impact/benefits/costs.
Public goods?
A person’s consumption or production does not hinder others from consuming/producing the same good. Central concept to separate public from private goods.
Elasticity, in very short, short & long term?
Different types of Income Elasticity of demand?
Normal good
Basic good
Luxury good
Inferior good
How does Taxing P or C affect the shift in supply/demand Curve?
Who bears the burden of a tax? P or C?
P: tax in PS, loses money, C don’t affected as mush.
C: tax in CS, affected, stuck to market.
Monopolies?
What is Price discrimination?
A pricing strategy, if firm can affect pricing by divide C in diff groups and take/capture as much C Surplus as they can by diff WTP groups, maximize WTP to max.
