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.
Private goods can be?
Rivalry: a person’s consumption of X impede others from consuming the same good. Car, house, candy bag.
Excludability: person that owns the good may prevent others from consuming the good.
Public good can be?
Non-rivalry: one person’s consumption don’t reduce its availability to anyone else.
Non-excludability: not possible to exclude others from consuming the good.
Environmental taxes does.. ??
Firms are required to pay tax on production, which raises the marginal cost for production, equaling to the social cost. Will rise the marginal cost!
Subsidies?
Implemented by GOV to promote positive behavior, like in public transport = people only pay 50% of the real costs.
Asymmetric information?
-One party in a transaction is better informed than the other.
- a car seller knows the quality of the car, the buyer can’t be sure if it’s correct. If buyers pay for average quality= the market collapse.
Depends on reputation & professionallity.
- Signals: by informed side = education + job. Show or prove info they want.
- Screening: by in-informed side = try to detect info. Stamps, papers, certificates.
Sum: unbalance between parts in a deal/transaction.
What is Elasticity in Demand & Supply?
*Are a kind of sensitivity & describes the relation between 2 variables, often price & quantity.
Price elasticity of Demand: measures how many % Quantity demanded changes, if price changes by 1%. [negative]
Prise elasticity of Supply: how many % Quality supplied changes, when price changes by 1%. [positive]
Elastic goods, price sensitive?
A small change in price will have a large effect, on the quantity demanded.
% change in demand changes MORE, than the % change in price.
More flat curve, substitute are avaliable, C leave the market.
Inelastic goods, less price sensitive?
Change in price will have little effect in the quantity demanded.
% change in demand, changes LESS than the % change in price.
C stays in market and consume.
