econ midterm 2

Coase Theorem

With clear property rights and low transaction costs, private bargaining can fix externalities.

Command

and

Common Resource

Rival but non

Excludability

Ability to prevent others from using a good.

Externality

Side effect on third parties not in a transaction.

Free Riding

Benefiting from a good without paying for it.

Market Failure

When markets don’t allocate resources efficiently.

Pigovian Taxes and Subsidies

Taxes or subsidies to fix neg externalities.

Private Good

Rival and excludable good, like food.

Public Good

Non

Rivalry

One person’s use reduces what’s left for others.

Tragedy of the Commons

Overuse of shared resources by individuals.

Cross

Price Elasticity of Demand

Elastic Demand

Qd changes a lot with price changes (elasticity > 1).

Elasticity

A measure of how much one variable responds to changes in another.

Income Elasticity of Demand

slope of Qd/slope of income

Inelastic Demand

When Qd changes little with price changes (elasticity < 1).

Perfectly Elastic Demand

Demand changes infinitely with even a tiny price change (horizontal line).

Perfectly Inelastic Demand

Quantity demanded doesn’t change with price (vertical line).

Price Elasticity of Demand

How much quantity demanded changes with a change in price.

Price Elasticity of Supply

How much quantity supplied changes with a change in price.

Total Revenue

Price times quantity

Unit

Elastic Demand

Accounting Profit

Total revenue minus explicit costs.

Asset

Anything of value owned by a person or firm.

Bond

A loan investors make to a company or government in exchange for interest payments.

Corporate Governance

The system of rules and practices controlling a company’s management.

Corporation

A business legally separate from its owners.

Coupon Payment

Regular interest payment to a bondholder.

Direct Finance

Borrowing funds directly from lenders by selling financial assets.

Dividends

Payments made to shareholders from a company’s profits.

Economic Profit

Total revenue minus both explicit and implicit costs.

Explicit Cost

Direct expenses.

Implicit Cost

Opportunity costs of using owned resources.

Indirect Finance

Borrowing through financial intermediaries like banks.

Interest Rate

The cost of borrowing money, expressed as a percentage.

Liability

A debt or financial obligation owed by a firm or person.

Limited Liability

Owners are only responsible for what they invested in the business.

Opportunity Cost

The value of the next best alternative given up.

Partnership

A business owned by two or more people.

Principal–Agent Problem

Conflict between owners (principals) and managers (agents).

Risk

The chance that actual outcomes differ from expected results.

Separation of Ownership from Control

When owners and managers of a firm are different people.

Sole Proprietorship

A business owned and run by one person.

Stock

A share of ownership in a corporation.

Wall Street Reform and Consumer Protection Act

2010 law increasing financial regulation and consumer protections.

Autarky

A situation where a country doesn’t trade with others.

Dumping

Selling goods abroad below cost to gain market share.

External Economies

Cost advantages that arise as an industry grows.

Globalization

Increasing economic and cultural connections worldwide.

Protectionism

Government policies restricting imports to protect domestic industries.

Quota

A limit on the quantity of a good that can be imported.

Tariff

A tax on imported goods.

Terms of Trade

The ratio of export prices to import prices.

Voluntary Export Restraint (VER)

When an exporting country agrees to limit its exports.

World Trade Organization (WTO)

International body that enforces trade rules and resolves disputes.