Econs Test 1

Some stuff ig

Opportunity cost

The cost (what you’re losing) by choosing a different option. The value of the next best alternative that is forgone when decision is made

Market based economies

All decisions are made by markets, where privately owned and operating producers interact with consumers, and prices serve as the only allocative mechanism 

Command/Centrally planned

All the decisions are made by the state 

Marginal Benefit

The added beenfit gained from the last unit procurred. the lowest amount you are willing to pay for a good

Marginal Cost

The additional cost of producing the last unit of goods/service — lowest amount a producer can charge without incurring a loss

Income

Affects ability to pay. When income increases people tend too buy less low quality procucts and more normal goods and vice versa.

Tastes and preferences

Affects perceived benefit and thus willingness to pay

Congestion effect

When a good becomes less valuable due to being used by a higher number of other people

Network effect

When good becomes more useful due to being used by higher number of people

Market efficiency

An efficient market is when all the resources going into the good is reflected in the benefit gained by consumers

Deadweight loss

Loss of (potential) surplus, not transfered to any party. The bigger the DWL the further we are from an efficiency and optimal welfare

Price ceiling

Government stipulated a maximum allowed price. ‘Insurance for consumers”. When P*>Pc price ceiling comes into effect — shortage may develop

Price floor

Government stipulates a minimum allowed price. ‘Insurance’ for producers. If Pf>P* price floor comes into effect — Surplus may develop

Prohibition

Government prohibits producing, selling, buying or consuming — potential for black markets to arise

Mandates

Government makes an activity compuslory by law — Education, vaccinations

Quotas

Government stipulates a maximum allowable quantity for production or sale.

Tax

An artificial added cost which drives a wedge in between the price paid by buyers Pb and the price received by sellers Ps

Subsidy

An artificial added benefit which drives a wedge in between the price paid by sellers PS and the price paid by buyers Pb

Elasticity

A way os measuring how sensitive one variable is to changes in another variable

Elastic D curve

Consumers are more responsive to changes in P, therefore a slight change in P —> a big change in Q

Inelastic D curve

Consumers are less responsive to changes in P, therefore a big change in P —> a small change in Q