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Econ Micro > Unit 12 > Flashcards

Unit 12 Flashcards

1
Q

Why do markets fail

A

Asymmetric info
Missing property rights
Incomplete contracts
External effects

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2
Q

Externality

A

Effect of economic decision that is not specified as benefits of liability in contract

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3
Q

MPC

A

MC cost to decision makers

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4
Q

MEC

A

Marginal external cost to society imposed by decision makers

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5
Q

MSC =

A

MPC + MEC

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6
Q

Negative externality =

A

MSC>MPC

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7
Q

Competitive profit max

A

Price (marginal revenue) = MPC

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8
Q

Social optimum

A

MSC = price

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9
Q

What could society do to reduce production

A

Pay firm compensation

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10
Q

What does bargaining acheive

A

Pareto effeicnet allocation regardless of who had property rights

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11
Q

Limits to bargaining / policies

A

Hard to enforce
Need representative to sort out deal
Hard to calculate exact cost of externality
Limited funds to compensate

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12
Q

With compensation when MR> MC + compensation what should firm do

A

Increase production

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13
Q

What should firm do when MR<MC + compensation

A

Decrease production

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14
Q

rival - excludable

A

Private good - food clothing

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15
Q

Rival non exludable

A

Common pool good

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16
Q

Non rival excludable

A

Club good - toll roads tv subs

17
Q

Non rival and non excludable

A

Public good - nhs

18
Q

Non rival good =

A

Use by one person does not reduce availability

19
Q

MC for non rival

A

MC =0

20
Q

Non excludable

A

Impossible form excluding anyone from access

21
Q

What behaviour does non excludable

A

Free rider

22
Q

How are private goods allocated

A

Markets

23
Q

Asymmetric info

A

One party knows information that the other party doesn’t to relevant transaction

24
Q

Moral hazard problem example

A

Being sacked bc employer doesn’t know level of employee effort

25
Q

Adverse selection problem example

A

Quality of second hand car unknown to the buyers

26
Q

Why markets don’t allocate everything

A

For example markets of babies or organs is wrong
Goods that should be available to everyone like education shouldn’t be marketed

Econ Micro (8 decks)

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