unit 2 to unit 7

Self-Interest

Individuals prioritizing their own payoffs may not lead to socially optimal outcomes.

Invisible Hand

A metaphor for the unseen forces that move the free market economy.

Prisoner’s Dilemma

A situation in which two individuals acting in their own self-interest do not produce the optimal outcome.

Tragedy of the Commons

A scenario in which shared resources are overused and depleted due to individual self-interest.

Social Preferences

The consideration of both one's own payoffs and the payoffs of others in decision-making.

Altruism

The willingness to help others at a cost to oneself.

Inequality Aversion

A disinclination to accept unequal outcomes.

Reciprocity

The practice of responding kindly to kindness, and punishing unkind behavior.

Social Norms

Shared rules that dictate acceptable behaviors within a society.

Nash Equilibrium

A situation in which no player can benefit by changing their strategy while the other players keep theirs unchanged.

Pareto Efficiency

An allocation is Pareto efficient if no one can be made better off without making someone else worse off.

Ultimatum Game

A game where the proposer offers a split, and the responder can accept or reject.

Dictator Game

A game where the responder cannot reject the offer, often illustrating the trade-off between efficiency and fairness.

Substantive Fairness

Concern with the outcomes of allocations and their equality.

Procedural Fairness

Concern with the process of decision making, ensuring it is impartial and transparent.

Rawls’ Veil of Ignorance

A method of evaluating policies without knowledge of one's position in society to encourage impartial judgment.

Employment Rent

The benefit of having a job over the next best alternative, influencing effort and employer power.

Price Elasticity of Demand

A measure of how the quantity demanded of a good changes in response to a change in price.

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay.

Producer Surplus

The difference between the price received by producers for a good and their costs of production.