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Unformatted text preview: Definitions for Final Economics 304K:Principles of Microeconomics Prof. Meg Ledyard Please use these definitions word for word. You may paraphrase, but do so at your own risk. Sometimes what you think means the same does not. There will be no separate definitions section, however, you may be asked to define a word as a part of a longer problem. Natural Monopoly An industry with decreasing average total cost. Arises because of high fixed costs, and low marginal costs. MC regulation Requiring the natural monopoly to charge a price equal to where MC=D. ATC regulation Requiring the natural monopoly to charge a price equal to where ATC= D. Export good produced domestically and sold abroad. Import good produced abroad and sold domestically. World Price The price of a good that prevails in the world market for that good. Tariff A tax on goods produced abroad and sold domestically. Externality The uncompensated impact of one persons actions on the well-being of a bystander. Internalizing an Externality Altering incentives so that people take account of the external effects of their actions. Pigovian Tax A tax that corrects the effects of a negative externality. Tradeable Permits a permit that may be bought or sold and gives the owner the right to pollute a certain amount. Coase Theorem If property rights are well defined, and transaction costs are low, then there is no externality problem. Command and Control The government directly tells firms what amount they can pollute. Rivalry The property of a good whereby one persons consumption of the good diminishes another persons enjoyment of the good. Excludability The property of a good whereby an individual can be excluded from using the good. Public Good Non-rival and non-excludable good Private Good Rival and excludable good Common Resource Rival, non-excludable good Free Rider A person who consumes a good but does not pay for it. Burden of Taxation The difference between the price in a market with no tax and the price paid with a tax. Buyers burden = Pbuyer P* Sellers burden = Pseller P* Moral Hazard Once an individual has insurance, they are more likely to engage in high risk behavior because they do not bear the full cost of their actions....
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- Fall '08