Econ 2.8-2.12

Maximum price

A price set by a government or other authority that is below the market equilibrium price of a good or service, also known as a price ceiling.

Minimum price

A price set by a government or other authority above the market equilibrium price of a good or service, also known as a price floor.

Price ceiling

A price imposed by an authority and set below the equilibrium price. Prices cannot rise above this price.

Price controls

Prices imposed by an authority, set above or below the equilibrium market price.

Price floor

A price imposed by an authority and set above the market price. Prices cannot fall below this price.

Stakeholder

An individual or group of individuals who have an interest, or stake, in an economic activity or outcome.

Allocative inefficiency

When either more or less than the socially optimal amount is produced and consumed so that misallocation of resources results. MSB ≠ MSC.

Carbon (emissions) taxes

Taxes levied on the carbon content of fuel. They are a type of Pigouvian tax.

Collective self-governance

Users of a common pool resource solve the problem of overuse by devising rules regarding obligations, monitoring use, and resolving conflicts.

Common pool resources

Natural resources that are non-excludable but rivalrous in use, like fisheries.

Demerit goods

Goods or services that harm individual consumers and society, often overconsumed due to negative externalities.

Excludable

The ability of producers to charge a price and exclude those who do not pay.

Externalities

Costs or benefits to third parties from economic activities for which they are not compensated.

Marginal social benefit (MSB)

The extra benefit to society from consuming an additional unit of output, including both private and external benefits.

Marginal social cost (MSC)

The extra cost to society of producing an additional unit of output, including both private and external costs.

Market failure

The failure of markets to achieve allocative efficiency, resulting in social surplus not being maximized.

Merit goods

Goods or services considered beneficial and under-provided by the market, leading to under-consumption.

Negative externalities of consumption

Negative effects on third parties resulting from the consumption of a good or service.

Negative externalities of production

Negative effects suffered by a third party whose interests are not considered when a good or service is produced, so the third party are therefore not compensated.

Pigouvian taxes

Indirect taxes imposed to eliminate external costs of production or consumption.

Positive externalities of consumption

Beneficial effects enjoyed by third parties from the consumption of a good or service.

Rivalrous

Consumption by one individual reduces the amount available for others.

Socially optimum output

The output level where allocative efficiency occurs; MSB equals MSC.

Tradable permits

Permits to pollute that can be traded, setting a maximum allowable pollution level.

Tragedy of the commons

A situation where individuals acting in self-interest deplete or spoil common resources.

Welfare loss

Loss of a part of social surplus that occurs when market failure prevents equalization of MSB and marginal private benefits.

Free rider problem

When individuals consume a good or service without paying for it due to non-excludability.

Non-excludable

A good or service where it is impossible to prevent others from using it.

Non-rivalrous

Goods whose consumption by one person does not reduce consumption ability for others.

Public goods

Goods with non-rivalry and non-excludability characteristics, like flood barriers.

Asymmetric information

A market failure where one party has more or better information than the other in a transaction.

Moral hazard

A situation where a party takes risks without facing full consequences after a transaction occurs.

Screening

The use of a screening process by a less informed party to gain more information and reduce adverse selection.

Signalling

When a more informed party sends a signal to reveal relevant information to a less informed party.

Abnormal profit

Profit earned when average revenue exceeds average cost.

Abuse of market power

When a firm attempts to eliminate competitors or prevent new entrants to the market.

Adverse selection

A situation in asymmetric information where incomplete information causes one party to withdraw from the market.

Average costs

Total costs per unit of output produced.

Average revenue

Revenue earned per unit sold, equal to the price of the good.

Barriers to entry

Obstacles that deter new firms from entering a market.

Collusive oligopoly

A market where firms collude to fix prices or output.

Competitive market

A market with many independent firms where no single firm can control the price.

Concentration ratios

The proportion of industry sales accounted for by the largest firms.

Corporate social responsibility

A corporate goal to create and maintain ethical and environmentally responsible practices.

Default choice

When a choice is made by default without active selection.

Economies of scale

Falling average costs that firms experience when increasing scale of operations.

Game theory

A branch of mathematics studying strategic interactions among decision-makers.

Homogeneous product

Goods considered identical across firms from the consumers' perspective.

Imperfect competition

A market structure where firms have some market power and face a negatively sloped demand curve.

Investment (I)

Spending by firms on capital goods like machines and equipment.

Long run in microeconomics

The period when all production factors are variable.

Loss (economic)

Occurs when total costs exceed total revenues; equal to total cost minus total revenue.

Marginal revenue

The extra revenue from selling one more unit of output.

Market concentration

The extent to which total sales are dominated by the largest firms.

Market power

The ability of firms to raise prices above competitive levels.

Monopolistic competition

A market structure with many sellers producing differentiated products with no entry barriers.

Monopoly

A market structure dominated by a single firm with high entry barriers.

Natural monopoly

A monopoly efficiently serving the entire market demand while maintaining lower average costs.

Non-collusive oligopoly

Firms in an oligopoly competing without price agreements.

Non-price competition

Competition based on factors other than price, like product differentiation.

Normal profit

The minimum return necessary for a firm to remain in business.

Oligopoly

A market structure dominated by a few large firms.

Payoff matrix

A table showing possible outcomes from decisions in game theory.

Perfect competition

A market structure with many small firms selling identical products without barriers.

Perfect information

All stakeholders have access to the same information in transactions.

Price maker

A firm able to influence the price of its product.

Price competition

Competition based on price.

Price taker

A firm unable to influence market price, accepting the market-determined price.

Price war

A situation where firms continuously cut prices to outdo competitors.

Product differentiation

The process firms use to make their products distinct from competitors' offerings.

Rational producer behaviour

The assumption that firms seek to maximize profit.

Rules of thumb

Mental shortcuts for decision-making, providing satisfactory but not perfect choices.

Short run in microeconomics

The period when at least one production factor is fixed.

Total costs

All costs incurred by a firm in using resources to produce goods.

Positive externalities of consumption

The beneficial effects that are enjoyed by third parties whose interests are not accounted for when a good or service is consumed, therefore they do not pay for the benefits they receive.

Positive externalities of production

The beneficial effects that are enjoyed by third parties whose interests are not accounted for when a good or service is produced, therefore they do not pay for the benefits they receive.