Download Economics 1370 Vocabulary List: Definitions, Part 1 01. SCARCITY

Economics 1370
Vocabulary List: Definitions, Part 1
01.
SCARCITY: Occurs when relatively unlimited human wants
exceed the ability of limited resources to satisfy those
wants.
02.
VOLUNTARY EXCHANGE: When two parties to a potential
exchange can bargain over the exchange price and exchange
the good if both parties benefit from the exchange or,
refrain from exchange if one party does not benefit.
03.
COERCION: When a legislative body imposes limitations on
some party’s property rights at the request of a potential
exchange party or some outside group which has no direct
economic stake in the potential exchange. The parties who
are limited by such laws typically suffer an economic loss
from this limitation and so would not have consented to it
if given the freedom to do so.
04.
AN EFFICIENT STRUCTURE OF PROPERTY RIGHTS: The rights to an
asset must be:(a) Well-defined; (b) Exclusive meaning that
the stream of net benefits generated by the asset should
accrue to the owner and should be secure from involuntary
seizure or encroachment by others; and (c) Transferable
(all property rights should be transferable from one owner
to another in a voluntary exchange).
05.
RESIDUAL CLAIMANT: The owner of an asset who has the right
to the current and future stream of revenues which remain
after all fixed claims on an asset have been paid. Since
any activity which is detrimental or beneficial in the
future will be reflected in the value of the asset now the
residual claimant has a strong incentive to be very futureoriented.
06.
RES NULLIUS REGIMES: A regime in which no one owns or
exercises control over the resources. Resources are
exploited on a FCFS basis. (NOTE: These regimes are also
known as OPEN-ACCESS REGIMES)
07
COMMON PROPERTY REGIMES: A regime where the property is
jointly owned and managed by a specified group of coowners.
08.
STATE PROPERTY REGIMES: A regime where the government owns
and/or limits the use of the property.
09.
RENT-SEEKING: Occurs when special interest groups use
resources in lobbying and other activities directed at
securing protective legislation. Successful rent-seeking
activity will increase the net benefits going to the group
but will frequently lower the net benefits to society as a
whole.
10.
LAW OF DEMAND: The quantity demanded of a good varies
inversely with its price, all other things held constant.
All other things held constant refers to those factors
which shift the position of the demand curve and must be
held constant in order to observe the influence of changes
in the price of a good on the quantity demanded of that
good:
(a) Consumers' incomes,
(b) Prices of related goods in consumption (substitutes and
complements)
(c) The number of consumers of this good
NOTE THE FOLLOWING:
(1) Varies inversely means that changes in the price of a
good induce changes in the quantity demanded of a good in
the opposite direction.
(2) The direction of causation is from changes in price to
changes in quantity demanded.
11.
DEMAND PRICE: The maximum price a consumer is willing and
able to pay for any particular unit of a good.
12.
THE LAW OF SUPPLY: The quantity supplied of a good varies
directly with its price, all other things held constant.
All other things held constant refers to those factors
which shift the position of the supply curve and must be
held constant in order to observe the influence of changes
in the price of a good on the quantity supplied of that
good:
(a) Input prices,
(b) Technology,
(c) Taxes (regulation) and subsidies
(d) The number of producers of this good
NOTE THE FOLLOWING:
(1) Varies directly means that changes in the price of a
good induce changes in the quantity supplied in the same
direction
(2) The direction of causation is from changes in price to
changes in quantity supplied.
13.
SUPPLY PRICE: The minimum price at which a producer is
willing and able to sell any particular unit of a good.
This minimum price is dictated by the opportunity costs of
the resources used to produce any particular unit of a
good.
14.
EQUILIBRIUM: Where the quantity supplied equals the
quantity demanded at a given price.
15.
CHANGES IN DEMAND: Occurs when one of the things being held
constant for the demand curve changes.
16.
CHANGES IN SUPPLY: Occurs when one of the things being held
constant for the supply curve changes.
17.
SOCIAL WELFARE MAXIMUM: This occurs when the sum of the
consumers' and producers' gains from trade is a maximum. In
the absence of any market failures, this point can be found
at market equilibrium.
18.
WELFARE LOSS (WL): This occurs because either output is too
small relative to output at the social welfare maximum
(with resources being diverted to other markets where they
have lower valued uses) or too much output is produced
relative to output at the social welfare maximum (with
resources being used in a lower valued use in the given
market).
NOTE THE FOLLOWING:
(1) Typically, when too few resources are used in the given
market, other parts of the economy are using too many
resources. If these resources had been used in the market
in question instead of elsewhere, the economy would have
experienced a net welfare gain.
(2) Again, when too many resources are attracted into a
given market, too few resources are employed elsewhere. If
the resources used in this market had been used elsewhere,
the economy would have experienced a net welfare gain.
19.
EXTERNALITY: External costs are costs that are imposed on
third parties who have not consented to bear such costs. As
such they are external to the decisions of the producers of
such costs.
20.
COASE THEOREM: As long as negotiation costs are negligible
and affected parties can negotiate with each other (when
the number of affected parties is small), the court could
allocate the entitlement to either party and an efficient
allocation would result.
21.
EMISSION STANDARDS: This is a legal limit on the amount of
a pollutant an individual source is allowed to emit.
22.
EMISSION CHARGE: This is a fee, collected by government,
levied on each unit of pollutant emitted into the air or
water.
23.
TRANSFERABLE EMISSION PERMITS: This system requires each
source to acquire a permit which specifies the precise
amount of pollution each source is allowed to emit. Any
emissions below this amount means the source can sell some
of its permits; any emissions above this amount means the
source must purchase more permits or face severe monetary
sanctions.