P u b l i c  E c o n o m i c s

Overview of  General Economic Concepts

Marginal Cost:

• The cost of  the last unit

Opportunity Cost:

• cost of doing something different.

Externalities:

• something that mask the true cost of an economic decision

True Cost:

• the cost plus the social cost

Pure Market Economy

• Private Property Rights
• Decentralized decision making
• Government enforcement of property rights

Command economy

• Government ownership of property
• Centralized decision making

Competitive market

• Enough buyers and sellers to dilute influence
• Standardized products
• Prices are free to move
• Buyers and sellers have comparable alternatives
• Freedom to enter and exit the market

Monopoly

• One seller
• Barriers to entry
• Freedom to change prices

Social Utility

• If everybody acts to increase their individual utility, their will be a net increase in social utility.
• If we act to advance our personal utility but are operating out of limited information, we risk impacting social utility

Equilibrium:

• When the demand from buyers equals the demand of sellers.

Government effect on Gross Domestic Product:

• Labor Force
• Technology
• Capital
• Efficiency
• Population
• Government Regulation

Public Goods

• Goods that are non rival in consumption and non-excludable

Private Goods

• Goods that are rival in consumption and excludable

Pareto Efficiency:

• Goods in the market can not be changed to make someone better off without waking someone worse off.

Criteria for government intervention in the market

• Lack of full information
• Externalities
• Public Goods
• Non-Competitive markets
• need to distribute wealth to achieve social goals