Term
| What is a positive externality? How could a gov’t deal with it? |
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Definition
| the effect on bystanders is beneficial. By subsidizing. |
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Term
| What is a negative externality? How could a gov’t deal with it? |
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Definition
| the effect on bystanders is adverse. Impose a tax on the firm equal to the external cost. |
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Term
| What are private value and cost curves |
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Definition
| the direct value to buyers. |
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Term
| Does society produce too much or too little products that have positive externalities? |
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Definition
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Term
| Does society produce too much or too little products that have negative externalities? |
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Definition
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Term
| Are markets with externalities efficient |
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Definition
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Term
| What does “internalizing the externality” mean? |
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Definition
| altering incentives so that people take account of the external effects of their actions |
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Term
| What is the Coase theorem? Must gov’ts always be involved in correcting for an externality? |
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Definition
The private market will reach the efficient outcome on its own.
No they don't get involved |
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Term
| what are social value and cost curves? |
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Definition
private value–the direct value to buyers
•external benefit–the value of the positive impact on bystanders |
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Term
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Definition
a person who receives the benefit of a good but avoids paying for it.
If good is not excludable, people have incentive to be free riders, because firms cannot prevent non-payers from consuming the good |
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Term
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Definition
a tax designed to induce private decision-makers to take account of the social costs that arise from a negative externality
aka Pigouvian taxes.
reduces demand. |
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Term
| what is technology spillover? |
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Definition
the impact of one firm's research and production efforts on other firms access to technology advance.
a positive externality. |
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Term
| what does rival in consumption mean? |
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Definition
| if one person use a good it will be harder for other to use the good. |
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Term
| what is patent and why is it issued |
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Definition
gives inventors exclusive use of their invention for a limited time.
So people won't steal it. |
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Term
| what does excludable means |
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Definition
| if a person can be prevented from using it. |
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Term
| what is command and control regulation |
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Definition
| the govt can remedy an externality by making certain behaviors either required or forbidden. |
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Term
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Definition
restricts the supply of pollution rights, has the same effect as the tax.
it affect the supply |
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Term
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Definition
excludable, rival in consumption
example: food |
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Term
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Definition
not excludable, not rival
example: national defense |
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Term
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Definition
rival but not excludable
example: fish in the ocean |
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Term
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Definition
excludable but not rival
example: cable TV |
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Term
| Why is cost-benefit analysis so difficult |
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Definition
a study that compares the costs and benefits of providing a public good
because Cost-benefit analyses are imprecise, so the efficient provision of public goods is more difficult than that of private goods. |
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Term
| What is the Tragedy of the Commons? |
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Definition
| A parable that illustrates why common resources get used more than is socially desirable. |
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Term
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Definition
| do not require a cash outlay,e.g.the opportunity cost of the owner’s time |
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Term
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Definition
| require an outlay of money,e.g.paying wages to workers |
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Term
| What problems does lack of property rights create? |
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Definition
| it could cause market failure and govt could potentially solve the problem |
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Term
| what is accounting profit |
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Definition
total revenue minus total explicit costs
Accounting profit ignores implicit costs, so it’s higher than economic profit |
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Term
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Definition
| total revenue minus total costs (including explicit and implicit costs) |
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Term
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Definition
the increase in output arising from an additional unit of that input, holding all other inputs constant.
ΔQ
ΔL |
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Term
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Definition
is the increase in Total Cost from producing one more unit:
ΔTC/ΔQ |
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Term
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Definition
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Term
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Definition
| fixed cost plus variable cost |
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Term
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Definition
| take the first total cost |
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Term
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Definition
| total cost minus fixed cost. |
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Term
| how is long run different from short run |
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Definition
long run: All inputs are variable (e.g.,firms can build more factories, or sell existing ones)
Short run: Some inputs are fixed (e.g.,factories, land). The costs of these inputs are FC. |
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Term
| What is marginal revenue? |
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Definition
the change in total revenue from the sale of each additional unit of output.
MR=Change in TR/Change in Q |
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Term
| what is margin revenue relationship to the price of products? |
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Definition
| for competitive firm it is equal to the price of product. |
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Term
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Definition
total revenue divided by the amount of output. Average revenue tells us how much revenue a firm receives for the typical unit sold.
Avg revenue=TR/Q |
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Term
| what is average revenue relationship to price of product? |
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Definition
| in all firms it is equal to the price of product |
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Term
| Where is profit max for a competitive firm? |
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Definition
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Term
| When will a firm shut down? |
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Definition
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Term
| When will a firm exit an industry? |
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Definition
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Term
| When does entry into a competitive industry stop? |
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Definition
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Term
| If firms in an industry are making economic profit, what will happen in that industry? What will happen to price of that product? |
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Definition
In the zero-profit equilibrium,
•firms earn enough revenue to cover these costs
•accounting profit is positive |
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Term
| Why are competitive firms “price takers?” What does this mean? |
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Definition
| takes the price as given; many buyers and many sellers & the goods offered for sale are largely the same. |
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Term
| what are diseconomies of scales |
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Definition
| When long-run average total cost rises as output increases |
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Term
| what is economies of scales |
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Definition
| the property whereby long-run average total cost falls as the quantity of output increases |
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Term
| what is constant return to scale |
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Definition
| the property whereby long-run average total cost stays the same as quantity of output changes |
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Term
| when a firm exit an industry, is it a long run concept or a short run concept? |
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Definition
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Term
| when a firm shuts down, is it a long run or short run concept? |
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Definition
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