Microeconomics & Public Policy
Microeconomics & Public Policy EC 251H
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This 4 page Class Notes was uploaded by Kareem Larkin PhD on Saturday September 19, 2015. The Class Notes belongs to EC 251H at Michigan State University taught by Kenneth Boyer in Fall. Since its upload, it has received 22 views. For similar materials see /class/207649/ec-251h-michigan-state-university in Economcs at Michigan State University.
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Date Created: 09/19/15
EC 251H Final Exam Vocab Chapter 10 Supply Response The change in quantity of output supplied in response to a change in demand conditions Market Period A short period of time during which quantity supplied is fixed Eguilibrium Price The price at which the quantity demanded by buyers of a good is equal to the quantity supplied by sellers of the good ShortRun Market Supply Curve The relationship between market price and quantity supplied of a good in the short run ShortRun Elasticity of Supp y The percentage change in quantity supplied in the short run in response to a 1 percent change in price Constant Cost Case A market in which entry or exit has no effect on the cost curves of firms Increasing Cost Case A market in which the entry of firms increases firms costs LongRun Elasticity of Supply The response to a 1 percent change in price change in quantity supplied in the long run in Decreasing Cost Case A market in which the entry of firms decreases firms costs Chapter 11 Consumer Surplu The extra value individuals receive from consuming a good over what they pay for it What people would be willing to pay for the right to consume a good at its current price Producer Surplu The extra value producers get for a good in excess of the opportunity costs they incur by producing it What all producers would pay for the right to sell a good at its current market price Ricardian Rent Longrun profits earned by owners of lowcost firms May be capitalized into the prices of these firms inputs Economically Efficient Allocation of Resources An allocation of resources in which the sum of consumer and producer surplus is maximized Reflects the best utilitymaximizing use of scarce resources Tax Incidence Theory The study of the final burden of a tax after considering all market reactions to it Deadweight Los Losses of consumer and producer surplus that are not transferred to other parties Tariff A tax on imported goods May be equivalent to a quota or a nonquantitative restriction on trade Chapter 12 General Equilibrium Model An economic model of a complete system of markets Partial Eguilibrium Model An economic model of a single market Economically Efficient Allocation of Resources An allocation of resources in which the sum of consumer and producer surplus is maximized Reflects the best utilitymaximizing use of scarce resources First Theorem of Welfare Economics A perfectly competitive price system will bring about an economically efficient allocation of resources Imperfect Competition A market situation in which buyers or sellers have some influence on the prices of goods or services Externality The effect of one party s economic activities on another party that is not taken into account by the price system Public Goods Goods that are both nonexclusive and nonrival Eguity The fairness of the distribution of goods or utility Pareto Efficient Allocation An allocation of available resources in which no mutually beneficial trading opportunities are unexploited That is an allocation in which no one person can be made better off without someone else being made worse off Contract Curve The set of efficient allocation of the existing goods in an exchange situation Points off the curve are necessarily inefficient since individuals can be made unambiguously better off by moving to the curve lnitial Endowments The initial holdings of goods from which trading begins Chapter 13 Barriers to Entm Factors that prevent new firms from entering a market Natural Monopoly A firm that exhibits diminishing average cost over a broad range of output levels Monopoly Rent The profits that a monopolist earns in the long run Perfect Price Discrimination Selling each unit of output from the highest price obtainable Extracts all of the consumer surplus available in a given market Chapter 14 Oligopoly A market with few firms but more than one Cournot Model An oligopoly model in which firms simultaneously choose quantities of a homogeneous product Bertrand Model An oligopoly model in which firms simultaneously choose prices for a homogeneous product Capacity Constraint A limit to the quantity a firm can produce given the firm s capital and other available inputs Stakelberg Eguilibrium Subgameperfect equilibrium of the sequential version of the Cournot game Incomplete lnformatio One player has information about payoffs in the game that another does not Predatom Pricing An incumbent s charging a low price in order to induce the exit of a rival PriceLeadership Model A model with one dominant firm that behaves strategically and a group of small firms that behave as price takers Competitive Fringe Group of firms that act as price takers in a market dominated by a price leadeL Monopolistic Competitio market in which each firm faces a downwardsloping demand curve and there are no barriers to entry Chapter 15 Marginal Revenue Product The extra revenue obtained from selling the output produced by hiring an extra worker or machine Marginal Value Product MVP A special case of marginal revenue product in which the firm is a price taker for its output Substitution Effect In the theory of production the substitution of one input for another while holding output constant in response to a change in the input s price Output Effect The effect of an input price change on the amount of the input that the firm hires that result from a change in the firm s output level Monopsony Condition in which one firm is the only hirer in a particular input market Marginal Expense The cost of hiring one more unit of an input Will exceed the price of the input ifthe firm faces an upwardsloping supply curve for the input Bilateral Monopoly A market in which both suppliers and demanders have monopoly power Pricing is indeterminate in such markets Leisure Time spent in any activity other than market work Substitution Effect of a Change in W Movement along an indifference curve in response to a change in the real wage A rise in W causes an individual to work more lncome Effect of a change in W Movement to a higher indifference curve in response to a rise in the real wage rate If leisure in a normal good a rise in wcauses an individual to work less Chapter 16 Present Value Discounting the value of future transactions back to the present day to take account of the effect of potential interest payments Scarcity Costs The opportunity costs of future production forgone because current production depletes exhaustible resources lnterest Payment for the current use of funds Compound Interest lnterest paid on prior interest earned Perpetuity A promise of a certain number of dollars each year forever Yield The effective internal rate of return promised by a payment stream that can be purchased at a certain price Chapter 17 Asymmetric Information In a game with uncertainty information that one player has but the other does not Principal Player offering the contract in a principalagent model Agent Player who performs under the terms of the contract in a principleagent model MoralHazard Problem The agent s actions affect the principal but the principal does not directly observe the actions Adverse Selection A version of the principalagent model in which the agent s type is private information Gross Consumer Surplu The most consumers would pay for a bundle rather than doing without it IncentiveCompatible Describes contract that gets the agent to make the intended choice CommonValues Setting Object has the same value to all bidders but each only has an imprecise estimate of the value
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