Economics (Subject) / Definitions 4 (Lesson)

definitions 4

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• externality A good or a service has externality if the actions of producers/ consumers of that good affect people other than themselves.
• Non-Rivalry: : Use by one individual does not reduce availability to others.
• Non-Excludability Individuals cannot be effectively excluded from use.
• Marginal Social Cost (MSC) Marginal Social Cost (MSC) of a given good or service is the extra cost of producing/ consuming another unit of that good to the society, not to just a person who consumes it.
• Marginal Social Benefit (MSB) of a given good is the extra benefit of producing/ consuming another unit of that good to the society, not to just a person who consumes it.
• socially efficient A given level of production/ consumption of any given good or service is socially efficient if MSB = MSC at that level.
• Market: Given prices, consumers do their utility maximization, firms do their profit maximization, and prices are such that demands are equal to supplies.
• Pareto-Dominates An allocation or a group/ society choice X Pareto-Dominates another alternative Y, if nobody prefers Y to X and at least one member prefers X to Y.
• Pareto-Improvement. Changing from Y to X is called Pareto-Improvement.
• Pareto-Optimality An allocation or a group/ society choice Y is Pareto-optimal if there is no other alternative that Pareto-dominates Y. In other words, an allocation or a group/ society choice Y is Pareto-optimal if, starting with Y, nobody can be made better off without making at least one individual worse off.
• Gross Domestic Product (GDP): The total value of output produced within the country over a 12-month period.
• 45 degree line model The 45 degree line model explains how GDP and domestic consumption are determined
• a marginal propensity of consumption.
• Multiplier Effect If J (= I + G + X-M) increases for some reason, then the equilibrium GDP also increases and that increase is even greater than that of J. This is known as the multiplier effect.
• Growth is the long-term increase of the GDP, the GDP trend.
• Business Cycle means the short-term fluctuations of GDP around the trend.
• Growth Rate Annual Growth Rate is the GDP of the year less the GDP of the preceding year and this divided by the GDP of the preceding year.
• wage rigidity or sticky wage. In particular, wage follows the move of CPI with a large time lag, which is known as wage rigidity or sticky wage.
• Lesson 1 Inflation/ deflation may hurt some people, if not all prices change in the same way.
• Lesson 2: Long-term contracts made in the past cannot be changed. So if inflation/ deflation differs from what people expected, it causes a problem to one side of the contract.
• Stagflation means a rising price and falling GDP (Supply curve to the left).

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