Data

Copy and paste the text below. It is read-only. Select All

Externality A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service Private Cost The cost borne by the producer of a good or service Social Cost The total cost of producing a good or service, including both the private cost and any external cost Private Benefit The benefit received by the consumer of a good or service Social benefit The total benefit from consuming a good or service including both the private benefit and any external benefit Market Failure a situation in which the market fails to produce the efficient level of output property rights the rights individuals or businesses have the the exclusive use of their property, including the right to buy or sell it transaction costs the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services Coase Theorem the argument that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities Pigovian taxes and subsidies government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities Command and control approach an approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices rivalry the situation that occurs when one person's consuming a unit of a good means no one else can consume it excludability the situation in which anyone who does not pay for a good cannot consume it private good a good that is both rival and excludable public good a good that is both nonrivalrous and nonexcludable free riding benefiting from a good without paying for it common resource a good that is rival but not excludable tragedy of the commons the tendency for a common resource to be overused Quasi-public good excludable but not rival Positive Externality associated with a benefit negative externality associated with a cost tradable emissions allowances an approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit. Firms are issued Tradable Emissions Allowances so that they can buy/sell/trade across the industry monopolistic competition a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical products output effect selling additional units of a product price effect losing money by selling a product at a lower price than you could have profit maximizing quantity where MR intersects MC profit maximizing price where the profit maximizing quantity hits the demand curve profit (P - ATC) X P profits in the long run demand curve shifts until it is touching the ATC curve, so the firm breaks even productive efficiency a situation where a good is produced at the lowest possible cost allocative efficiency a situation where every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it marketing all the activities necessary for a firm to sell a product to a consumer brand management the action of a firm intended to maintain the differentiation of a product over time average revenue TR/Q marginal revenue change in TR/ change in Q monopoly a firm that is the only seller of a good or service that does not have a close substitute patent the exclusive right to a product for a period of 20 years from the date the product is invented copyright a government granted exclusive right to produce and sell a creation public franchise a government designation that a firm is the only legal provider of a good or service network externalities a situation in which the usefulness of a product increases with the number of consumers who use it natural monopoly a situation in which economies of scale are so large that one firm can supply the entire market at a lower average cost than can two market power the ability of a firm to charge a price greater than marginal cost horizontal merger a merger between firms in the same industry antitrust laws laws aimed at eliminating collusion and promoting competition among firms collusion an agreement among firms to charge the same price or otherwise not to compete vertical merger a merger between firms at different stages of production law of one price identical products should sell for the same price. holds when transaction costs are 0. arbitrage buying a product in one market then selling it at a higher price in a different market price discrimination charging different prices to different customers for the same product when the price differences are not due to differences in costs. Requires a firm to have market power, some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be able to know what prices customers are willing to pay. The firm must be able to divide or segment the market for product so consumers who buy at a low price will not resell at a higher price. WILL NOT WORK IF ARBITRAGE IS POSSIBLE. two part tariff a situation in which consumers pay one price for the right to buy as much of a related good as they want at a second price cost plus pricing adding a percentage markup to average cost. Marginal costs and average costs must be roughly equal. It will determine optimal price if firm has difficulty estimating its demand curve. Sherman act 1890 prohibited "restraint of trade" including price fixing and collusion. Also outlawed monopolization. Clayton act 1914 prohibited firms from buying stock in competitors and from having directors serve on the boards of competing firms federal trade commission act 1914 established the federal trade commission to help administer antitrust laws