Unit 5/6 Test - Micro

Monopsomy

• a market with only one buyer, control over the price of a good/service

• should hire workers until MRPL = MFCL

Marginal Social Cost

the additional cost imposed on society

Marginal Social Benefit

the additional benefit to society

Asymmetrical info

When buyers and sellers have different information in transactions

Adverse selection

One party in the transaction has more information than the other, leading to market inefficiencies

Moral hazards

One party takes on more risk because another party bears the cost of that risk, often due to asymmetric information

Signaling

An informed party takes costly actions to convey private information to an uninformed party

Copayments

fixed fees for healthcare services

What are externalities?

production/consumption of product that has benefits/costs to others

Positive production externality

• Qopt>Qmkt

• 2 supply curves

• DWL →

Positive consumption externality

• Qopt>Qmkt

• 2 demand curves

• DWL →

Negative production externality

• Qopt<Qmkt

• 2 supply curves

• DWL ←

Negative consumption externality

• Qopt<Qmkt

• 2 Demand curves

• DWL ←

Technology spillover

technology improves and spills over to help more people

Network externalities

a product's value to a user increases as more people use it

Coase theorem

under zero transaction costs and perfect market conditions, property rights conflicts can be resolved efficiently through private negotiation

Internalizing externalities

take external costs/benefits into account

Pigouvian taxes

taxes designed to correct the inefficiencies of external costs

Pigouvian subsidies

corrects inefficiencies of external benefits

Environmental standards

rules that protect the environment by specifying limits from prices to costs

GINI coefficient

• between 0 and 1

• A/A+B

Lorenz curve

measures the level of inequality for a country

What brings wages down?

discrimination

What brings wages up?

• human capitol

• compensating differentials

• efficiency wages

• unions

What is compensating differentials?

wage differences across jobs that reflect some jobs are worse than others

What are efficiency wages?

wages above the eq level that employers pay to incentivize hard work and reduce worker takeover

What are unions?

organizations that try to raise wages/working conditions

What does it mean to be excludable?

people can be prevented from using a good/service unless they pay

What does it mean to be a rival in consumption?

the same unit of good can’t be used by 2 people at once

Private good

excludable/rival in consumption

Public good

non-excludable/non-rival in consumption

Common resource

non-excludable/rival in consumption

Artificially scarce goods

excludable/non-rival in consumption

What is human capitol?

• Interest

• man made improvement in labor creating by training/education/knowledge

What is labor?

• Wage

• work done by humans

What is land?

• Rent

• Natural resources used in production

• Physical land and raw materials

What is physical capitol?

• Interest

• Man made asset used to make other items

What is entrepreneurship?

innovation and risk-taking

MRPL equation

MPL * MR=P