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Final Exam Study Guide

Final Exam Study Guide - Betsy Distelburger ECON 101 Review...

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Betsy Distelburger 12/9/08 ECON 101 Review Key Information Since the Midterm Key Terms: Efficiency Wage- a wage paid for a job that is higher than the wage paid for the same job at other companies. Diversifiable Risk- the fact that some stocks go up while others go down, it does not depend on the conditions of the economy. Market Risk- all stocks tend to go up or down at the same time. Present Value of Debt Contracts- amount of money the borrower can get today in exchange for the interest and principal repayment promises in the note or bond. Present Value of Equity Contracts- amount of money the issuer can get today in exchange for the residual claim in the common stock. Risk Premium- Difference between the return on the market and the risk free rate. Market Failure- when the market does not deliver Pareto efficiency. Pigouvian Tax- forces the market to internalize the externality. Lorenz Curve- shows the distribution of income in a society Pure Public Good- a good or service that provides non-excludable and non-rival benefits to all people in the population. Key Concepts and Relationships: The Demand Curve for Capital is the marginal revenue product of capital curve. Annual Rental Price of Capital R =P * (r + d) o The rental price of capital reflects the rate at which the resources are used.
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