ECON 2010 Midterm 2

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  1. world price
    price of a good that prevails in the world market for that good
  2. Export
    domestic price < world price
  3. price takers
    • take world price as given
    • usually: small economy, will not effect world markets
  4. Image Upload
    • Image Upload
    • D = gains from trading
  5. Image Upload
    • Image Upload
    • D = gains from trading
  6. tariff
    tax on imports
  7. internalizing the externality
    altering incentives so that agents take account of the external effects of their actions
  8. Govt. Solving Externality
    • Command and Control
    • Market-Based Solution
  9. Command and Control
    enforced regulations (only x pollutants, adopt y technology, etc)
  10. Market-Based Solution (Tax)
    • corrective tax: Pigouvian tax
    • makes market produce at optimal level
  11. Market-Based Solution (Cap and Trade)
    • give pollutant permits
    • govt auctions off pollution permits
    • free trade between companies for permits
    • *similar to Command/Control, but can trade
  12. Charities
    positive externality
  13. Pigouvian Tax
    tax (tau) = externality (e)
  14. Property Rights
    • if government gives property rights to someone
    • let consumers bargain w/o transaction cost
    • will reach optimal condition
    • Coase Theorem
  15. Image Upload
    E = dead weight loss
    Image Upload
  16. Excludability
    • property of a good whereby a person can be excluded from using it
    • i.e. not air, not natl defense
  17. Rivalry in Competition
    property whereby one person's use diminishes other peoples' use
  18. Private Goods
    • excludable AND rivalry in consumption
    • i.e. food, cothing, congested toll roads
  19. Public Goods
    • neither excludable NOR rivalry in consumption
    • i.e. national defense, uncongested toll roads
  20. Common Resources
    • only rivalry in consumption
    • i.e. fish, willife, natl resources
  21. Natural Monopoly
    • only excludable
    • i.e. cable tv, fire protection
  22. Free Rider
    person who receives benefits without payingq
  23. Tragedy of the Commons
    parable that says why common resources are used more than desirable from the standpoint of a society as a whole
  24. Accounting Profit v. Economic Profit
    • Accounting - only explicit costs
    • Economics - also takes into account implicit costs (i.e. opportunity costs)
  25. Profit (pi) = TR - TC
  26. Total Revenue
    amount firm receives for the sale of its product
  27. TR = P x Q
  28. Production Function
    relationship between quantity of inputs used to make a good and quantity of output
  29. Marginal Product
    increase in output from an additional unit produced
  30. MR = delta(output) / delta(input)
  31. Cost v. Output Graph
    • Line = total cost
    • m = slope = marginal cost
  32. Fixed Cost
    costs that do not vary with the quanitty produced
  33. Variable Cost
    costs that vary with the quantity produced
  34. Marginal Cost
    increase in total cost that arises from an extra unit produced
  35. MC = delta(TC) / delta(Q)
  36. AFC = FC / Q
  37. AVC = VC / Q
  38. ATC = TC / Q = (FC / Q) + (VC / Q)
  39. Efficient Scale
    • where MC intersects ATC at lowest point
    • (do not neccessarily produce there)
  40. Image Upload
  41. Short Run
    Fixed costs exist
  42. Long Run
    Only variable costs
  43. LRATC = long-run ATC
    Image Upload
  44. Profit (pi) = (P - ATC) x Q
  45. AvgR = TR / Q
  46. MR = delta(TR) / delta(Q)
  47. Profit-Maximizing Condition
    • competitive market
    • monopoly
    • MR = MC
  48. Competitive:
    if P > MC
    increase production
  49. Competitive:
    if P < MC
    decrease production
  50. Competitive:
    if P = MC
    optimal production
  51. Sunk Cost
    • cost that has already been committed and cannot be recovered
    • only short-run
  52. Short Run shut-down
    • losses: TR
    • saves: VC
    • will only do so if VC > TR
    • AVC x Q > P x Q
    • AVC > P
  53. Long Run shut-down
    • losses: TR
    • saves: TC
    • will only do so if TC > TR
    • ATC x Q > P x Q
    • ATC > P
  54. Zero Profit
    Long Run Competitive Firms
  55. Monopoly
    firm that is sole seller of a product without suitable substitutes
  56. Monopolies Barriers to Entry
    • monopoly resources
    • government regulation
    • natural monopoly
  57. Natural Monopoly
    • cheaper for one company to provide service then 2+ companies
    • i.e. utilities
  58. Government Regulation
    patents, copyrights, etc
  59. Monopoly Resources
    • one firm owns all resources for making product
    • i.e. DeBeers diamond mines
  60. Perfectly Competitive
    P = MR = MC
    • Monopoly
    • P > MR = MC
  61. Pm = D(Qm)
  62. PS = Qm(Pm-MC)
  63. D = a - b Q
    • MR = delta(TR) / delta(Q)
    • = a - 2b Q
    • =dTR/dQ
  64. Profit vs. PS
    profit is affected by fixed/sunk costs
  65. Quantity monopolist supplies dependent on
    • MC curve
    • Demand curve
    • Halt Production: MC > D
    • always produce less than Qo (society wants)
  66. Price Discrimination
    different prices for same product
  67. Price Discrimination (Results)
    • CS = 0
    • PS = more
    • no DWL
    • Qo produced
Author:
sherieberry
ID:
48638
Card Set:
ECON 2010 Midterm 2
Updated:
2010-11-10 06:28:42
Tags:
ECON ECON midterm uva
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ECON 2010 Midterm 2 UVA
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