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Key concpets (2) - Coggle Diagram
Key concpets (2)
Chapter 4
Reciprocity
A preference to be kind or to help others who are kind and helpful, and to withhold help and kindness from people who are not helpful or kind
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Prisoners dilemma
A game in which the payoffs in the dominant strategy equilibrium are lower for each player, and also lower in total, than if neither player played the dominant strategy
Dominant strategy
Action that yields the highest payoff for a player, no matter what the other players do
Social preferences
Preferences that place a value on what happens to other people, even if it results in lower payoffs for the individual
Best response
In game theory, the strategy that will give a player the highest payoff, given the strategies that the other players select
Zero game sum
A game in which the payoff gains and losses of the individuals sum to zero, for all combinations of strategies they might pursue.
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Public good
A good for which use by one person does not reduce its availability to others. Also known as non-rival goods
Division of labour
The specialization of producers to carry out different tasks in the production process. Also known as specialization
Social norm
An understanding that is common to most members of a society about what people should do in a given situation when their actions affect others
Game
A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs
Revealed preference
A way of studying preferences by reverse engineering the motives of an individual (her preferences) from observations about her/his actions
Strategy
An action (or course of action) that a person may take when that person is aware of the mutual dependence of the results for herself an for others. The outcomes depend not only on that persons actions, but also on the actions of others
Crowding out
There are two quite distinct uses of the term. On is the observed negative effect when economic incentives displace peoples ethical or other regarding motivations. In studies of individual behaviour, incentives may have a crowding out effect on social preferences. A second use of the term is to refer to the effect of an increase in government spending in reducing private spending, as would be expected for utilization, or when a fiscal expansion is associated with a rise in the interest rate
Strategic interaction
A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them)
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Social interactions
Situations in which the actions taken by each person affects other peoples outcomes as well as their own
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Game theory
A branch of mathematics that studies strategic interactions, meaning situations in which each actor knows that the benefits they receive depend on the actions taken by all
Economic rent
A payment or other benefit received above and beyond what the individual would have received in his/her next best alternative
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Sequential game
A game in which all players do not choose their strategies at the same time, and players that choose later can see the strategies already chosen by the other players, for e.g. the ultimatum game
Free ride
Benefiting from the contributions of others to some cooperative project without contributing oneself
Simultaneous game
A game in which players choose strategies simultaneously, for e.g. the prisoners dilemma
Social dilemma
A situation in which actions taken independently by individuals in pursuit of their own private objectives result in an outcome which is inferior to some other feasible outcome that could have occurred if people had acted together, rather than as individuals
Minimum acceptable offer
In the ultimatum game the smallest offer by the proposer that will not be rejected by the responder. Generally applied in bargaining situations to mean the least favorable offer that would be accepted
Nash equilibrium
A set of strategies, one for each player in the game, such that each players strategy is a best response to the strategies chosen by everyone else
Chapter 3
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Opportunity cost
When taking an action implies forgoing the next best alternative action, this is the net benefit of the foregone alternative
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Economic cost
The out-of-pocket cost of an action, plus the opportunity cost
Indifference curve
A curve of the points which indicate the combinations of goods that provide a given level of utility to the individual
Economic rent
A payment or other benefit received above and beyond what the individual would have received in his/her next best alternative (reservation option)
Utility
A numerical indicator of the value that one places on an outcome, such that higher valued outcomes will be chosen over lower valued ones when both are feasible.
Feasible frontier
The curve made of points that defines the maximum feasible quantity of one good for a given quantity of the other
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Feasible set
All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faced
Tangency
When two curves share one point in common but do not cross. The tangent to a curve at a given point is a straight line that touches the curve at that point but does not cross it.
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Concave function
A function of two variables for which the line segment between any two points on the function lies entirely below the curve representing the function
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Diminishing returns
A situation in which the use of an additional unit of a factor of production results in a smaller increase in output than the previous increase. Also known as diminishing marginal returns in production
Budget constraint
An equation that represents all combinations of goods and services that one could acquire that exactly exhaust ones budgetary resources
Marginal product
The additional amount of output that is produced if a particular input was increased by one unit, while holding all other inputs constant
Income effect
The effect that the additional income would have if there were no change in the price or opportunity cost
Average product
Total output divided by a particular input, for example per worker (divided by the number of workers.
Substitution effect
The effect that is only due to changes in the price or opportunity cost, given the new level of utility
Production function
A graphical or mathematical expression describing the amount of output that can be produced by any given amount or combination of inputs. The function describes differing technologies capable of producing the same thing
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Scarcity
A good that is valued, and for which there is an opportunity cost of acquiring more