ABM 1041 Mizzou Midterm 2

commodity

a basic good or product that is easily sold and bought in the market.

Seasonal price pattern

Suggests that commodity prices are at their lowest right after harvest.

Flow commodities

commodities that are marketed every week of the year like livestock

Market Basket

The shares that a producers and manufactures get from the process of selling a good. (Farm-to-retail spread)

Consumer surplus

the difference between the consumers marginal benefit and the price.

Producer surplus

the difference between the firm's marginal cost and the price.

Dead Weight Loss (DWL)

lost economic surplus

Five reasons for market failure (leads to inefficient outcome)

1. Market Power undermines competition

2. Externalities create side affects

3. Information problems

4. Irrationality = bad decisions

5. Government regulations impede market forces

Price Ceiling

Forces price down(binding)

Price Floor

Forces price up(binding)

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Types of trade restrictions

tariffs, quotas, and subsidies

Externality

A positive or negative side affect on a bystander not taken into account by the participants.

What are the six methods to internalize the externality?

1. Private bargaining

2. Corrective taxes and subsidies

3. Cap and trade

4. Laws, rules, and regulations

5. Government provision of public goods

6. Assign ownership rights

Coase Theorem

When bargaining is costless and property rights are established externality problems can be solved within private bargains.

Pigouvian Tax

a tax designed to correct externalities. Also done with Pigouvian subsidies.

Cap and Trade

Acts as a quota for managing damaging activity. Ex: factories have pollution permits.

Rivalrous good

a good that one person uses and come at someone else's expense.

excludable good

a good for which it is easy to prevent consumption by those who do not pay

Private good

a good that is both rival and excludable

Public good

Goods that are neither excludable nor rival in consumption

common good

a good that is non-excludable and rival in consumption

Tragedy of the Commons

situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community

Which party pays more of the tax?

The less elastic party

Minimum wage has a negative affect on the market when...

...demand is elastic