test 2 terms Flashcards
public goods
goods that are neither excludable or rival in consumption
common resources
goods that are rival in consumption but not excludable
externality
the uncompensated impact of one person’s actions on the well-being of a bystander BUT neither pays nor receives compensation for that effect
the market equilibrium is not efficient when there are externalities
government can create policies/taxes for externatilities
firms and competitive markets
CM: a market with many buyers and sellers trading identical products so that each buyer and seller is a prize taker
monopoly
a firm that is the sole seller of a product without any close substitutes
ex. of negative externalities
pollution
social cost exceeds private cost
externality from production causes..
supply curve to shift
externality from consumption causes..
demand curve to shift
long run decision
enter/exit the market
exit when…
P < ATC
enter when…
P > ATC
short run decision
operate/shut down
shut down when….
P < AVC
operate when….
P > AVC
how can the externality be internalized?
by altering incentives so that people take into account the external effects of their actions
what do command-and-control policies do?
regular behavior directly by requiring or forbiding certain behaviors
what is market-based policy 1?
corrective taxes and subsidies
corrective taxes
taxes enacted to deal with the effects of negative externalities
ex. pigovran taxes)
what is market-based policy 2?
tradable pollution permits
types of private solutions
charities + contracts
coase theorem
if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
transaction costs
the costs that parties incur in the process of agreeing to and following through on a bargain
free rider
person who receives the benefit of a good but does not pay for it
cost benefit analysis
a study that compares the costs + benefits to society of providing a public good
tragedy of the commons
when private decision makers use the common resource too much
ex. of private goods
congested toll road
clothing
tv
goods for sale
ex. of club goods
non-congested toll road
fire department
cable tv
netflix
ex. of common resources
congested free road
wild life (fish in a pond)
parks
traffic jam*
negative externality?: toxic waste in a river
ex. of public goods
non-congested free road national defense street signs government providing old military road anyone!
POSITIVE EXTERNALITY: you are benefiting from police and military and not paying for it
are private goods excludable? rival?
yes; yes
are club goods excludable? rival?
yes; no
are common resources excludable? rival?
no; yes
are public goods excludable? rival?
no; no
rival
if you consume it, does it keep someone else from consuming it?
excludable
you have to pay for it
total revenue
the amount a firm receives for the sale of an output
profit
P= TR- TC
total cost
the market value of the inputs a form uses in production
explicit costs
what you have to give money to recieve
input costs that require an outlay of money by the firm
implicit costs
dealing w/ opportunity cost
input costs that do NOT require an outlay of money by the firm
ex. having an engineering degree but wanting to open a bakery
____ measure both explicit and implicit costs
economists
______ measure only explicit costs
accountants
economic profit
total revenue - total cost - operational cost
TR-TC- op. costs
including both explicit and implicit costs
accounting profit
TR- TC
^ total explicit costs
production function
the relationship between the relationship of production and the output of a good
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
marginal product
the increase of production from the input*
the increase in output that arises from an additional unit of input
fixed costs
costs that do not vary with quantity of output
average total cost (ATC) formula
ATC= TC/Q
average fixed cost (AFC) formula
AFC= FC/Q
average variable cost (AVC) formula
AVC= VC/Q
marginal cost
MC= *delta*TC/Q MC= change in costs/ change in quantity
increase in total cost from extra unit
average revenue
AR= TR/Q
marginal revenue
change in total revenue from an additional unit firm maximize profit by producing the quantity at which MC=MR
if marginal revenue is greater than marginal cost, the firm should _____ its output
increase
if marginal cost is greater than marginal revenue, the firm should _____ its output
decrease
at the profit maximizing level of output, marginal revenue and marginal cost are ________
exactly equal
profit formula
P= TR-TC …….(ch. 12)
P= (P-ATC) * Q
in the long run, ______ make zero profit
competitive markets
what is a monopolists profit-maximizing quantity of output determined by?
the intersection of the marginal revenue curve and the marginal cost curve
price discrimination
the business practice of selling the same good at different prices to different customers
monopolists _____. when they do it perfectly, _________ and ________ become profit
price discriminate;
consumer surplus and profit
true or false:
government can regulate prices if need be
true
true or false:
government cannot promote competition with trusts
false
public ownership
government owned and operated
marginal cost formula
MC= P > MR
sunk cost
cost that cannot be recovered
contingent valuation
how much is something worth to you?
willingness to pay + willingness to accept
another symbol for profit is ___
the “pie” sign
in non profit organizations, people are paid but ____
the firm doesn’t gain
on graphs, demand=
private benefit
on graphs, supply=
private cost
monopolies are ____
price makers
monopolies determine the price that they want to sell at using…
P > MC = MR
what is a subsidy?
a sum of money granted by the government to assist an industry or business so that the price of a commodity or service may remain low or competitive
cost of production/production costs
costs incurred by a business when manufacturing a good or providing a service
ex. includes labor, raw materials, consumable manufacturing supplies, and general overhead
how to find the cost of production per unit
the cost of production/ the number of units produced
Qmax on a monopoly graph
what the monopoly will produce; where MR = MC
deadweight loss on monopoly graphs
the difference between the monopoly and the market area
in a perfectly competitive market, MR=
P (price)
on the U graphs, the left U is the area where..
there are economics of scale (aka. when youre decreasing cost)
on the U graphs, the middle/big U is the area where..
constant returns to scale
on the U graphs, the right U is the area where..
there are diseconomies of scale
