ECON 2010 Midterm 2

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sherieberry
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48638
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ECON 2010 Midterm 2
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2010-11-10 01:28:42
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ECON ECON midterm uva
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ECON 2010 Midterm 2 UVA
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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
    • D = gains from trading
    • D = gains from trading
  4. tariff
    tax on imports
  5. internalizing the externality
    altering incentives so that agents take account of the external effects of their actions
  6. Govt. Solving Externality
    • Command and Control
    • Market-Based Solution
  7. Command and Control
    enforced regulations (only x pollutants, adopt y technology, etc)
  8. Market-Based Solution (Tax)
    • corrective tax: Pigouvian tax
    • makes market produce at optimal level
  9. 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
  10. Charities
    positive externality
  11. Pigouvian Tax
    tax (tau) = externality (e)
  12. Property Rights
    • if government gives property rights to someone
    • let consumers bargain w/o transaction cost
    • will reach optimal condition
    • Coase Theorem

  13. E = dead weight loss
  14. Excludability
    • property of a good whereby a person can be excluded from using it
    • i.e. not air, not natl defense
  15. Rivalry in Competition
    property whereby one person's use diminishes other peoples' use
  16. Private Goods
    • excludable AND rivalry in consumption
    • i.e. food, cothing, congested toll roads
  17. Public Goods
    • neither excludable NOR rivalry in consumption
    • i.e. national defense, uncongested toll roads
  18. Common Resources
    • only rivalry in consumption
    • i.e. fish, willife, natl resources
  19. Natural Monopoly
    • only excludable
    • i.e. cable tv, fire protection
  20. Free Rider
    person who receives benefits without payingq
  21. Tragedy of the Commons
    parable that says why common resources are used more than desirable from the standpoint of a society as a whole
  22. Accounting Profit v. Economic Profit
    • Accounting - only explicit costs
    • Economics - also takes into account implicit costs (i.e. opportunity costs)
  23. Profit (pi) = TR - TC
  24. Total Revenue
    amount firm receives for the sale of its product
  25. TR = P x Q
  26. Production Function
    relationship between quantity of inputs used to make a good and quantity of output
  27. Marginal Product
    increase in output from an additional unit produced
  28. MR = delta(output) / delta(input)
  29. Cost v. Output Graph
    • Line = total cost
    • m = slope = marginal cost
  30. Fixed Cost
    costs that do not vary with the quanitty produced
  31. Variable Cost
    costs that vary with the quantity produced
  32. Marginal Cost
    increase in total cost that arises from an extra unit produced
  33. MC = delta(TC) / delta(Q)
  34. AFC = FC / Q
  35. AVC = VC / Q
  36. ATC = TC / Q = (FC / Q) + (VC / Q)
  37. Efficient Scale
    • where MC intersects ATC at lowest point
    • (do not neccessarily produce there)
  38. Short Run
    Fixed costs exist
  39. Long Run
    Only variable costs
  40. LRATC = long-run ATC
  41. Profit (pi) = (P - ATC) x Q
  42. AvgR = TR / Q
  43. MR = delta(TR) / delta(Q)
  44. Profit-Maximizing Condition
    • competitive market
    • monopoly
    • MR = MC
  45. Competitive:
    if P > MC
    increase production
  46. Competitive:
    if P < MC
    decrease production
  47. Competitive:
    if P = MC
    optimal production
  48. Sunk Cost
    • cost that has already been committed and cannot be recovered
    • only short-run
  49. Short Run shut-down
    • losses: TR
    • saves: VC
    • will only do so if VC > TR
    • AVC x Q > P x Q
    • AVC > P
  50. Long Run shut-down
    • losses: TR
    • saves: TC
    • will only do so if TC > TR
    • ATC x Q > P x Q
    • ATC > P
  51. Zero Profit
    Long Run Competitive Firms
  52. Monopoly
    firm that is sole seller of a product without suitable substitutes
  53. Monopolies Barriers to Entry
    • monopoly resources
    • government regulation
    • natural monopoly
  54. Natural Monopoly
    • cheaper for one company to provide service then 2+ companies
    • i.e. utilities
  55. Government Regulation
    patents, copyrights, etc
  56. Monopoly Resources
    • one firm owns all resources for making product
    • i.e. DeBeers diamond mines
  57. Perfectly Competitive
    P = MR = MC
    • Monopoly
    • P > MR = MC
  58. Pm = D(Qm)
  59. PS = Qm(Pm-MC)
  60. D = a - b Q
    • MR = delta(TR) / delta(Q)
    • = a - 2b Q
    • =dTR/dQ
  61. Profit vs. PS
    profit is affected by fixed/sunk costs
  62. Quantity monopolist supplies dependent on
    • MC curve
    • Demand curve
    • Halt Production: MC > D
    • always produce less than Qo (society wants)
  63. Price Discrimination
    different prices for same product
  64. Price Discrimination (Results)
    • CS = 0
    • PS = more
    • no DWL
    • Qo produced

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