Economics CFA

  1. Resources might be allocated using these 8 ways:
    • Market price
    • Majority rule
    • Command
    • Contest
    • First come, first serve
    • Force
    • Lottery
    • Personal characteristics
  2. Marginal Benefit
    • - value of one more unit of a good or service
    • - measure it by the max. price that is willingly paid for another unit of the good or service
    • - willingness to pay determines demand
    • - the market demand curve is the economy's marginal social benefit (MSB) curve
  3. 1) Consumer surplus
    2) Producer surplus
    • 1) value of a good minus the price paid for it, summed over the quantity bought
    • 2) the price received for a good minus its minimum supply-rice, summed over the quantity sold
  4. Invisible hand
    • adam smith - suggest that competitive markets send resources to the uses in which they have the highest value
    • market forces persistently bring marginal cost and marginal benefit to equality and maximize total surplus
  5. deadweight loss
    • the decrease in total surplus that results from an inefficient level of production
    • comes from unerproduction or overproduction
  6. obstacles to efficiency that bring underproduction or overproduction
    • price and quantity regulations
    • taxes and subsidies
    • externalities
    • public goods and common resources
    • monopoly
    • high transactions costs
  7. Utilitarianism
    • nineteenth century idea that only equality brings efficiency
    • principle that states that we should strive to achieve "the greatest happiness for the greatest number."
    • transfer income from rich to poor so income levels are equal
  8. symmetry principle
    • requirement that people in similar situations be treated similarly
    • equality of oportunity
    • fairness has two rules: 1) the state must enforce laws that establish and protect private property 2) Private property may be transferred from one person to another only by voluntary exchange
Card Set
Economics CFA
Reading 14 - Efficiency and Equity