Midterm Flashcards
Closed System
A system where there are no inputs and no outputs of energy and matter from outside the system
Open System
A system which imports or exports energy or matter from outside
Static Efficiency
An allocation of resources is said to satisfy the static efficiency criterion if the economic surplus derived from those resources is maximized by that allocation
Consumer Surplus
The value that consumers receive from an allocation minus what it costs them to obtain it. Consumer surplus is measured as the area under the demand curve minus the consumer’s cost
Producer Surplus
The difference between the amount that a seller receives minus that the seller would be willing to accept for the good; the area under the price line that lies over the marginal cost curve
Externalities
Exist whenever the welfare of some agent depends not only on his or her activities, but also on activities under the control of some other agent
External cost
External diseconomy; it imposes costs on a third party
External benefit
External economy; it imposes benefits on a third party
Property Rights
A bundle of entitlements defining the owner’s rights, privileges, and limitations for use of the resource
State-Property Regimes
Governments own and control property
Common-Property Regimes
Property is jointly owned and managed by a specific group
Res Nullius/ Open Access Regimes
No one owns or exercises control over the resources
Common-Pool Resources
Shared resources characterized by nonexclusively and divisibility (nonexclusively = resources can be exploited by anyone) (divisibility = the capture of part of the resource by one group subtracts it from the amount available to other groups)
Public Goods
Both consumptively indivisible and nonexcludable (nonexcludability = a circumstance where, once a resource is provided, even those who fail to pay for it cannot be excluded from enjoying the benefits it confers) (Consumption is said to be indivisible when one person’s consumption of a good does not diminish the amount available for others)
Monopoly
When product is sold by a single seller; will supply too little of a good at too high a price; marginal benefits > marginal costs, so net benefits are not maximized and there is a deadweight loss
Cartel
A group of producers who form a collusive agreement to gain monopoly power
Free Rider
Someone who derives benefits from a commodity without contributing to its supply
Asymmetric Information
When one or more parties have much more information that the others. Creates problems for the market when it results in a decision-maker knowing too little to make an efficient choice
The Coase Theorem
When negotiation costs are negligible and affected parties can freely negotiate, the entitlement can be allocated by the courts to either party and an efficient allocation will result. Only the distribution of costs and benefits among the effective parties is changed
The Efficiency Equimarginal Principle
Net benefits are maximized when the marginal benefits from an allocation equal the marginal costs
Dynamic Efficiency
An allocation of resources across n time periods satisfies the dynamic efficiency criterion if it maximizes the present value of the net benefits that could be received from all the possible ways of allocating those resources over the n time periods
Depletable Resource
Not naturally replenished or is replenished at such a low rate that it can be exhausted
Recyclable Resource
Has some mass that can be recovered after use; ie copper
Renewable Resource
One that is naturally replenished; ie water, fish, forests, solar energy
Switch Point
The transition point to the renewable substitute; at this point, the total marginal cost of the depletable resource equals the marginal cost of the substitute
