Chapter 4 & 5 Economics Review

Analyze

• To break something down to its essential parts

• The tendency to react differently depending on the context

• When buyers and sellers are led to a choice that is mutually beneficial, without harming others.

Objective

• Anything people want to achieve

• People react more to a loss than an equal gain.

• When a firm has between 75%-99% of market share

Framing

• The tendency to react differently depending on the context

• When a good or service is provided to one person or group but cant be denied to others

• When the price of a good falls, some consumers substitute it for their normal purchase

Monopoly

• A situation in which there is only a single seller of a good or service

• An industry where long-run average cost is at a minimum when only one firm serves the market

• The tendency to react subjectively more strongly to losses than to gains of objectively equal size

Loss Aversion

• People react more to a loss than an equal gain

• The degree to

  which markets work efficiently in providing arrangements for

  mutually beneficial trade

• A broad collection of economic theories and communities of scholars that exist outside of mainstream economics

Transaction cost

• The cost, other than production costs, of carrying out a transaction

• Acting purposefully to achieve an objective, given constraints on the opportunities that are available

• what things people may use or control and the conditions under which they may exercise control

Market Failure

• When a market fails to achieve efficient use of resources

• The tendency to react differently to information depending on the context or language in which it is presented

• The tendency to react subjectively more strongly to losses than to gains of objectively equal size

Externality

• When price doesn't reflect cost to a 3rd party.

• Only worry about own welfare

• Resources allocated to high use.

Public Good

• When a good or service is provided to one person or group but cant be denied to others.

• When buyers and sellers are led to a choice that is mutually beneficial, without harming others

• When only one firm has 100% market share

Government Failure

• When gov't policy causes inefficient use of resources

• To break something down to its essential parts.

• Anything people want to achieve