microecon final eam

Created by

Laura Ruiz

Cards (103)

import
to buy goods or services from foreign sellers
export
to sell goods or services to foreign buyers
trade costs
the extra cost incurred as a result of buying or selling internationally rather than domestically
what do trade costs determine?
determines whether its worth buying or selling internationally
high trade costs ...
... not worth it
low trade costs ...
... worth it
as trade costs fall ...
... companies trade more intermediate inputs, operating global chains
sources of comparative advantage 
- abundant inputs
- specialized skills
- mass production
world price
the price that a product sells for in a global market
what is determined by the world price?
world supply and demand
domestic demand curve
shows the quantity of a good that all domestic consumers added together plan to buy at each price
domestic supply curve
shows the quantity of a good that all domestic suppliers added together plan to sell at each price
lower price imports raise ...
... consumer surplus
more expensive exports raise ...
... producer surplus
tariff
a tax on imported goods
(increases trade costs)
effects of tariffs
- price: up
- qt. demanded: down
- qt. supplied: up
= imports: down
import quota
limit on the quantity of a good that can be imported
(doesn't raise revenue)
globalization
the increasing economic, political, and cultural integration of different countries
relative abundant inputs
- lower opportunity costs
- sells what you have a lot of and buy what you don't
specialized skills
even when land, labor, and capital are all similar, better production techniques will lower your opportunity cost
mass production
- allows incredibly specialized production lines
- bargaining power for buying inputs
private information
when one party to a transactions knows everything/something and the other doesn't
- aka: asymmetric information
adverse selection of sellers
tended for the mix of goods to be skewed toward more low quality goods when buyers can't observe quality
solution to adverse selection of sellers
- buyers can learn from third party verifiers
- sellers can signal their products quality
- government can increase or weed out low quality goods
signal
an action taken to credibly convey information that is hard for someone else to verify
adverse selection of buyers
tendency for the mix of buyers to be skewed toward more high costs buyers when sellers don't know buyers type
actuarially fair
an insurance policy, that on average, is expected to pay out as much in compensation as it reactivates
solutions to adverse selection of buyers
- sellers can use information that is related to buyer's likely cost
- sellers can offer different contracts so that buyers sort themselves
- government can increase information or directly reduce adverse selection
moral hazard
the actions you take, because they are not fully observable and you are partially insulated from their consequences
principal agent problem
the problems that arise when a principal hires an agent to do something on their behalf, but the principal cannot perfectly observe the agents actions
pay for performance
linking the income your workers earn to measures of their performance: commission, price rates, bonuses, etc
rational ignorance
search for more information until the marginal cost = expected marginal benefit
risk premium
higher return on risky investment or lower price of risky products
risk is a set of ...
probabilities and payoffs
fair bet
a gamble, that one average, will leave you with the same amount of money
risk averse
disliking uncertainty
utility
measure of well being
marginal utility
the additional utility you get from one more dollar
diminishing marginal utility
each additional dollar yield a smaller boost to your utility - that is, less marginal utility - than the previous dollar
diminishing marginal utility makes you ...
... risk averse