ECON121 FINAL
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| Market Structure | Classification system for key traits of market including # of buyers, sellers, product bought and sold and ease of entry or exit into/from market
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| Public Good | They are non-excludable and non-rival in consumption. An example is a street sign
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| Private Good | Rivalry and excludability. Typically traded in markets
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| Market Failure | Situation where unrestricted operation of free market yields a result that is not socially optimal
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| Information Asymmetry | Occurs when info about good varies in relevant ways between buyers and sellers
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| Moral Hazard | market inefficiency resulting from information asymmetry. Terms of transaction lead to different behavior
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| Public Good | They are non-excludable and non-rival in consumption. An example is a street sign
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| Private Good | Rivalry and excludability. Typically traded in markets
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| Market Failure | Situation where unrestricted operation of free market yields a result that is not socially optimal
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| Information Asymmetry | Occurs when info about good varies in relevant ways between buyers and sellers
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| Moral Hazard | market inefficiency resulting from information asymmetry. Terms of transaction lead to different behavior
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| Adverse Selection | Market inefficiency resulting frmo information asymmetry. When one party has been deceived about qualities.
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| Negative Externality | cost imposed on "third parties" not reflected in market system
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| Pigovian tax | Special tax levied on company that pollute enviornment or create excess social costs. In true market, best way to correct negative externality.
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| Monopoly | Firm that is only producer of good or service which there are no good substitutes
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| Oligopoly | market structure where small number of large firms dominate industry
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| Monopolistic Competition | market structure where large number of small firms produce similar, not identical, product
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| Barriers to entry | market conditions that prevent entry of new firms into industry
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| Price discrimination | charging different customers different prices not related to difference in cost
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| First degree price discrimination | when seller charges different price for each unit of output and price is always max price consumer will pay
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| Third degree price discrimination | when seller is able to partition market demand into 2 or more groups and charges different prices to different groups
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| Producer surplus | gap between price of good and opportunity cost of producing it. Area below eq. line and supply line.
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| Consumer surplus | Difference between what consumer would willingly pay and what they actually play.
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| Shutdown point | price equals minimum average variable cost. P<AVC, firm shuts down
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| Elasticity of Supply | measures responsiveness of sellers to change in market price. ΔQs/ΔP * P/Qs
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| Break-even point | TR=TC, Profit=0. P=AC if break even
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| Production function | expression of the relationship between inputs and outputs holding tech. constant. l(land), L(labor), K(capital), E(entrepreneurship).
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| Short-run equilibrium | economic profit may be 0 or negative (bad times). Economic profit may be positive (good times).
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| Diminishing marginal product | as a firm uses more of a variable resources with a fixed resource and fixed technology, MP of variable resource will fall. Holds in short-run due to fixed input.
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| fixed cost | payments to fixed inputs. Does not depend on quantity produced.
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| variable cost | payments to variable inputs. varies with level of output
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| perfectly competitive market | Many firms sells to many buyers. Identical products. Products are rival and excludable. NO restrictions on entry/exit. Sellers and buyers well informed about prices.
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| short run | period where one input is fixed
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| long run | period in which no input is fixed
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| Three stages of production | Stage 1: From 0 units to MP=AP. Stage 2: MP=AP to where MP=0. Stage 3: When MP is negative.
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| economies of scale | When firm increases plant size and labor by same percentages, output increases by larger percentage and LAC(long-run average cost) decreases.
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| diseconomies of scale | when firm increases plant size and labor by same percentages, output increases by smaller percentage and LAC increases
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| Increasing returns to sale | Firm increases all inputs proportionally, output increases more than proportionately.
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| decreasing returns to sale | firm increases all inputs proportionally, output increases less than proportionately.
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