Markets and regulation 1.1 | Quizlet

relevance of economics to lawyers

- Decision-makers weigh costs and benefits

- Lawyers confronted with economic arguments

- Efficiency more important due to (not only

liberalisation but also) increased scarcity

- Judges stress the role of efficiency in law

Economic analysis of law:

- application of economic theory to predict effects of leglal sanctions on behaviour

- legal sanctions function like price that influence behaviour

--> provides a framework for analysing laws

--> enables prediction and evaluation of legal effects

laws as incentives and prices: traditional definition

A law is an obligation backed by a state sanction

laws as incentives and prices: ecocomic perspective

A law creates an implicit price for behaviors

- Example: a €10,000 fine for environmental

violations acts as a "price" that companies weigh

against the cost of compliance

Core principle 1: efficiency

What are the three core principles of economics discussed in this lecture?

Efficiency, Welfare, and Transaction.

What is efficiency in economics?

Getting the most benefit from available resources - benefits should outweigh costs.

What is cost-effectiveness?

Achieving a goal using the least amount of resources or cost.

What are transaction costs?

Costs of making a deal: information, bargaining, monitoring, and enforcement.

What is economic analysis of law?

Using economic ideas to predict how laws influence behavior.

How are laws like prices in economics?

Laws create costs (like fines) that people weigh against benefits of actions.

What's an example of law as a price?

A EUR 10,000 fine for pollution is like a price for polluting.

Why are transaction costs important in legal settings?

High transaction costs can make deals harder and reduce efficiency.

What is Pareto efficiency?

A change is efficient if someone benefits and no one is worse off.

What's the downside of Pareto efficiency?

It's hard to improve things without hurting someone else.

What is Kaldor-Hicks efficiency?

A change is efficient if winners could, in theory, compensate losers.

Why is Kaldor-Hicks more practical?

It allows for some people to lose, as long as total benefits are greater.

Is efficiency the same as fairness?

No. Efficiency looks at outcomes, not how fair the process is.

Is efficiency the same as equality?

No. It focuses on total welfare, not how it's shared.

What does Posner say about efficient laws?

We'd all want efficient rules if we didn't know our social position.

What is welfare in economics?

A person's well-being or satisfaction - can be monetary or non-monetary.

What is a transaction in economics?

A transfer of property rights, usually involving goods, money, and legal ownership.

What is demand?

How much consumers want to buy at different prices.

What is the demand curve?

A graph showing how quantity demanded decreases as price rises.

What is price elasticity of demand?

How much demand changes when the price changes.

What is supply?

How much producers are willing to sell at different prices.

What is the supply curve in perfect competition?

The marginal cost curve above the shutdown point.

What is profit?

Revenue minus cost.

What is marginal cost (MC)?

The cost of producing one more unit.

What is marginal revenue (MR)?

The revenue from selling one more unit.

When is profit maximized?

When marginal cost equals marginal revenue (MC = MR).

What is the shutdown point?

When price falls below average variable cost.

What is a perfectly competitive market?

A market with many buyers/sellers, identical goods, and no entry barriers.

Why does market failure happen?

Due to things like monopolies, externalities, public goods, or bad information.

What is regulatory failure?

When government rules make things worse instead of fixing market problems.

What is opportunity cost?

The value of what you give up when choosing something else.

What are sunk costs?

Costs already spent that shouldn't affect current decisions.

What is marginal analysis?

Comparing additional costs and benefits when making decisions.