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75 Cards in this Set
- Front
- Back
Externality |
Cost or benefit from either production or consumption that falls on someone other than the producer or consumer |
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Negative externality |
imposes external cost |
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Positive externality |
provides an external benefit |
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Examples of Negative Production Externalities |
Logging, Airplane Noise, and Pollution |
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Examples of Negative Consumption Externalities |
Smoking, and Loud Parties |
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Examples of Positive Externalities |
Flu vaccination |
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Marginal Social Cost |
Marginal Cost incurred by the entire society |
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MSC Formula |
MSC=Marginal Cost + Marginal external cost |
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Marginal Cost is borne by |
the producer |
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External Cost is borne by |
other than the producer |
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When is it efficient? |
MSC=MB Marginal Social Cost = Marginal Benefit |
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Coase Theorem |
If property rights exist and only small # of people and low transaction costs, then it is efficient. |
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MSB formula |
MSB = MB + Marginal external benefit |
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Rival |
Use by one person decreases # available for others |
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Excludable |
Possible to prevent someone from enjoying the benefits |
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Public Goods |
Non-Rival, and Non-Excludable |
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Common Resources |
Rival, and Non-Excludable |
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Natural Monopoly |
Non-Rival, and Excludable |
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Private Goods |
Rival and Excludable |
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Memorize the Chart for private good etc.
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Graph for MSC
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Graph for MSB
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Examples of Private Goods |
Food, Drink, Car, House |
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Examples of Common Resources |
Fish in the ocean, the atmosphere |
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Examples of Natural Monopoly |
Internet, and Cable |
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Examples of Public Goods |
National Defense, and The Law |
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Demand curve for public goods |
Summed vertically |
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Demand curve for private goods |
Summed Horizontally |
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Tragedy of Commons |
Overuse of a common resource when its users don't conserve |
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Short Run |
time-frame in which quantities of some resources are fixed. |
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Marginal Product formula |
MP= ^TP/^QL Change in Total Product divided by Change in Quantity of Labor |
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Total Product |
Total quantity of a good produced in a given period |
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Increasing Marginal Returns |
Additional worker exceeds the marginal product of the previous worker |
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Decreasing Marginal Returns |
Additional workers marginal product is less than the previous worker |
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Graph of Average costs
What equals what? |
Space between AVC and ATC are the same as AFC. |
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Long run |
All costs are variable |
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Economies of Scale |
Average Total Cost falls as output increases |
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Diseconomies of Scale |
Average Total Cost rises as output increases |
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Constant Returns to Scale |
Average Total Cost is constant |
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Long Run Average Cost Curve
(LRAC) |
Take the lowest portions of all ATC curves
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Price Taker |
Can't influence the price
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4 Characteristics of Perfect Competition |
1. No Barriers to entry 2. No Advantage 3. Identical Products 4. Well informed buyers and suppliers |
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Monopoly |
No close substitute Barrier to Entry |
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Monopolistic Competition |
Slightly different products |
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Oligopoly |
Almost identical products Small number of firms
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Marginal Revenue in Perfect Competition |
MR=Price |
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Shutdown Point |
Both at minimum AVC |
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Supply Curve of Shutdown point
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Upload Photo.
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Entry to Long Term |
Entry increases supply and lowers the price and increase in demand raises price.
Supply and Demand Curves shift to the Right. |
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Exit from Long Term |
Exit decreases supply and raises price and decrease in demand lowers price.
Supply and Demand Curves shift to the Left. |
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Monopoly Barriers |
Natural Monopoly Ownership Legal
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Demand and Marginal Revenue Curve in a Monopoly
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Monopoly produces a deadweight loss
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When demand is elastic Marginal Revenue is |
Positive |
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When demand is inelastic Marginal Revenue is |
Negative |
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Difference between private cost and social cost? |
Private cost only considers cost borne by producers |
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Property rights force |
Marginal Private Cost to = Marginal Social Cost |
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If a firm pollutes a river the government can... |
Impose a pollution tax that equals the Marginal external cost |
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If marginal external cost is $10 per ton, and firm is unregulated then... |
Marginal Social Cost will be $10 more than Marginal Benefit |
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Possible solutions to Tragedy of Commons |
Setting Production Quota Granting Individual Transferable Quotes Establishing Property Rights to the Resource
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The U-Shape reflects |
Increasing and Decreasing Marginal Returns |
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How to find Fixed Cost |
The Cost at 0 workers |
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How to find Variable Cost |
Total Cost - Fixed Cost |
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To maximize profits make |
Price = Marginal Cost |
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A perfectly competitive firm will survive if it has |
price at least equal to AVC |
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Short Run to increase profit must |
Increase Labor Quantity |
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If producing a good creates pollution in an unregulated market then marginal social cost is |
greater than equilibrium price |
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Diseconomies of scale can occur from |
Management difficulties as the firm increases its size |
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A perfectly competitive firm can sell all of |
its output at market price |
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Elasticity of Perfectly competitive firms |
Perfectly Elastic because they are price-takers |
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If a firm shuts down the price is |
less than minimum AVC |
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Based on figure, the firms marginal product curve slopes upward at levels of output between _________ and the firms average product curve slopes upward at levels of output between ________ |
0 and 4.0, 0 and 7.0
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When marginal revenue is positive, total revenue __________ when output increases and demand is __________ |
Increases; Elastic |
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Christy's Haircuts, faces the demand schedule shown above. What is marginal revenue of the 25th haircut |
$5.00
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To maximize its profit, a perfectly competitive firm produces so that _______ and a single-price monopoly produces so that _________. |
MR = MC; MR = MC |