Economics

• Margin


  The amount of money difference in cost to create
• Diminishing marginal utility


  The consumption of a product increases, the additional satisfaction from each unit declines
• Example of diminishing marginal utility


  • When you drink soda you get less satisfaction until you don't want it anymore
• Capital


  Factor of production, including physical assets like machinery and human capital like knowledge
• Margin


  The difference in values
• Example of margin


  • The difference in cost to create
• Financial capital


  Money used to buy
• Production capital


  The product or asset
• Intertemporal choice


  Choosing between present and future consumption
• Discount rate


  Measures a person's attitude toward waiting, reflects the time value of money
• There's no such thing as a correct discount rate, a "right" discount rate of 10% might vary depending on the person
• Reasons for increased productivity from division of labor

  • Become inventive
  • Gain dexterity
  • Save time
• Division of labor


  Gives rise to exchange due to increased productivity and service plus production
• Extent of the market

  Limits division of labor
• Roles of money


  • Medium of exchange
  • Unit of account
  • Store of value
• Properties of money


  Portable, continuously divisible and sortable
• Nice assumptions


  • No market power
  • No market failure
• Pareto optimality


  Perfect efficiency, when supply and demand chart cross at the equilibrium point
• Own-price elasticity


  should be high. price the elasticity is when measuring somebody’s own necessity to be there, or to do a certain job.
• Own price elasticity and total revenue as price changes

  Inverse relationship, elastic goods lead to increased total revenue with price increase
• Elasticity of demand faced by firm in perfect competition

  Perfectly elastic, as firms must accept market price
• Normal return


  The average return of all investments in the market, representing the expected return with no risk
• Factor demand as derived demand

  The demand for factors of production like labor and capital is derived from the demand for the final product
• Example of factor demand as derived demand

  • High demand for cars leads to high demand for labor and capital used in car production
• Pareto optimality


  The standard by which economists measure the efficiency of a general competitive equilibrium, meaning markets are run at the same rate of supply and demand
• Relationship between distributive outcome of market and distribution of society's endowment

  The market process determines how resources are distributed among individuals based on their preferences, aiming to maximize total surplus
• Free-rider problem


  People benefiting from a public good without paying for it, leading to underprovision of the good
• Artificially created market power

  When not everyone has equal access to information and resources, e.g. through patents, trade restrictions, laws, discrimination
• Example of artificially created market power

  • Disney's copyright on Mickey Mouse character
• Rent-seeking activity


  Trying to create an advantage in the market, e.g. adding copyright to an idea
• Conditions for elastic own-price elasticity of demand


  • Good is a luxury
  • Good has many substitutes
  • Good is not needed
• Conditions for inelastic own-price elasticity of demand


  • Good is necessary
  • Good has few substitutes
  • Good is needed immediately
• Supply shift variable that increases supply

  • Resource cost increases
• Cross-price relationship between goods A and B is positive


  Increase in price of good A leads to increase in demand for good B
• Cross-price relationship between goods A and B is negative

  Increase in price of good A leads to decrease in demand for good B
• Typical firm's cost structure

  Includes fixed costs, variable costs, and profit
• Subsidies increase


  Leads to negative profit (loss) for the typical firm
• Marginal social cost (MSC)


  Includes the private cost plus the external cost of a negative externality
• Marginal social benefit (MSB)


  Includes the private benefit plus the external benefit of a positive externality
• Externality


  The difference between the private and social costs/benefits