Positive externality benefits people not directly

Info icon This preview shows pages 2–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Positive externality – benefits people not directly involved b) Negative externality – causes harm for people that are not directly involved b.i)Company dumps toxic waste in water supply, someone smoking in a restaurant, construction noise, neighbors barking dog 23) Positional Externality – occurs when one party attempt so “one up” the other a) Jim buys wife a $1000 ring, friend Jon buys his wife a $2000 ring 24) Substitute Goods - goods that can be used in place of the other a) Pepsi & Coke 25) Complementary Goods – Hot dogs and hot dog buns a) When the price of one rises or falls the demand for the complimentary goods will also rise or fall 26) Law of Supply – direct positive relationship between quantity supplied and price a) Increase in price (P) = increase in quantity (Q) supplied b) Decrease in price (P) = decrease in quantity (Q) supplied 27) Supply is the relationship between price of the good and amount of a good a firm is willing and able to produce 28) Supply Curve – Upward positive slope a) Slopes upward due to the direct relationship between quantity and price 29) Moral Hazard – when people make less of an effort to avoid misfortune a) When someone doesn’t honk when a crash will occur because he wants to sue the owner 30) Rational Self Interest – Adam Smith – a) Producers of goods and services that act in their own self interest will improve public welfare or public interest a.i) Ex: construction worker who builds a road, gets paid benefits him, others use the road benefits them b) Invisible Hand Theory – by doing what is best for us, we ultimately do what is best for society b.i)Invisible hand guided the free market towards public goods b.ii) The free markets thrive on the basis of mutual self interest 31) Inferior Products – Walmart soda – demand is increased when income is decreased 32) Griffen – an inferior good that does not have a substitute (bread) 33) Normal Products – aka Superior Goods - Coke & Pepsi – demand is increase when income is increased 34) Veblen goods – snob goods, luxury cars, high end wines - “status” purchases a) Decrease in price causes a decrease in demand b) do not follow law of demand c) known as conspicuous consumption
Image of page 2

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
35) Barter – a direct exchange without using money 36) Price Floor (5) = surplus(7) – price cannot go below (floor stops it) a) Consumers must pay more than market, they no longer purchase b) Companies are guaranteed higher prices and produce more 37) Price Ceiling (7)= shortage (8) – price cannot go above (ceiling stops it) a) Shortage because suppliers cannot charge market prices so they produce less b) Consumers can buy the same produce for less so they purchase more b.i)(remember this by letter counts match - more letters in the words 7/8 -ceiling and shortage, less letters in the words 5/7 floor and surplus) – also C- comes before F in the alphabet so at the bottom is C of the equilibrium, at the top of the equilibrium is F.
Image of page 3
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern