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Key concepts (3) - Coggle Diagram
Key concepts (3)
Chapter 5
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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)
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Private property
The right and expectation that one can enjoy one's possessions in ways of one's own choosing, exclude others from their use, and dispose of them by gift or sale to others who then become their owners
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Power
The ability to do and get the things we want in opposition to the intentions of others, ordinarily by imposing or threatening sanctions
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Gains from exchange
The benefits that each party gains from a transaction compared to how they would have fared without the exchange
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Joint surplus
The sum of the economic rents of all involved in an interaction. Also known as total gains from exchange or trade
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Bargaining power
The extent of a persons advantage in securing a larger share of the economic rents made possible by an interaction
Pareto criterion
According to the Pareto Criterion, a desirable attribute of an allocation is that it be Pareto efficient
Reservation option
A person's next best alternative among all options in a particular transaction. Also known as fallback option
Pareto efficiency
An allocation that is not Pareto dominanted by any other allocation is described as Pareto-efficient
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Pareto efficient
An allocation with the property that there is no alternative technically feasible allocation in which at least one person would be better off, and nobody worse off
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Pareto dominant
Allocation A Pareto dominates allocation B if at least one party would be better off with A than B, and nobody would be worse off
Pareto efficiency
A Pareto-efficient allocation has the property that there is no alternative technically feasible allocation in which at least one person would be better off, and nobody worse off
The pareto criterion
According to the Pareto Criterion, allocation A dominates allocation B if at least one party would be better off with A than B, and nobody would be worse off. We say that A Pareto dominates B
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Allocation
A description of who does what, the consequences of their actions, and who gets what as a result
Pareto efficiency curve
The set of all allocations that are Pareto efficient. Often referred to as the contract curve, even in social interactions in which there is no contract, which is why we avoid the term
Bargaining power
The extent of a persons advantage in securing a larger share of the economic rents made possible by an interaction
Lorenz curve
A graphical representation of inequality of some quantity such as wealth or income. Individuals are arranged in ascending order by how much of this quantity they have, and then cumulative share of the total is then plotted against the cumulative share of the population. For complete equality of income, for example, it would be a straight line with a slope of 1. The extent to which the curve falls below this perfect equality line is a measure of inequality
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Gini coefficient
A measure of inequality of any quantity such as income or wealth, varying from a value of zero (if there is no inequality) to one (if a single individual receives it all)
Incentive
Economic reward or punishment, which influences the benefits and costs of alternative courses of actions
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Institutions
Institutions are written and written rules that govern:
-What people do when they interact in a joint project
-The distribution of the products of their joint effort
Chapter 6
Employment rent
The economic rent a worker receives when the net value of her job exceeds the net value of her next best alternative (that is, being unemployed) also known as cost of job loss
Natural experiment
An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment and control groups, as is the case in conventional experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random.
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Incomplete contract
A contract that does not specify, in an enforceable way, every aspect of the exchange that affects the interests of parties to the exchange (or of others)
Verifiable information, asymmetric information
Information is verifiable if it can be used in court to enforce a contract. Non-verifiable information, such as hearsay, cannot be used to enforce contracts. Information that is known by one party but not another is asymmetric
Free ride
Benefiting from the contributions of others to some cooperative project without contributing oneself
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
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Share
A part of the assets of a firm that may be traded. It gives the holder a right to receive a proportion of a firm's profit and to benefit when the firm's assets become more valuable. Also known as common stock
Reservation wage
What an employee would get in alternative employment, or from an unemployment benefit or other support, were he or she not employed in his/her current job
Residual claimant
The person who receives the income left over from a firm or other project after the payment of all contractual costs (for example the cost of hiring workers and paying taxes)
Nash equilibrium
A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else
Firm-specific asset
Something that a person owns or can do that has more value in the individuals current firm than in their next best alternative
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Efficiency wages
The payment an employer makes that is higher than an employee's reservation wage, so as to motivate the employee to provide more effort on the job than he/she would otherwise choose to make
Contract
A legal document or understanding that specifies a set of actions that parties to the contract must undertake
Labour discipline model
A model that explains how employers set wages so that employees receive an economic rent (called employment rent) which provides workers an incentive to work hard in order to avoid job termination
Asymmetric information
Information that is relevant to the parties in an economic interaction, but is known by some but not by others.
Unemployment, involuntary
The state of being out of work, but preferring to have a job at the wages and working conditions that otherwise identical employed workers have
Division of labour
The specialization of producers to carry out different tasks in the production process. Also known as specialization
Cooperative firm
A firm that is mostly or entirely owned by its workers, who hire and fire the managers
Firm
A business organization which pays wages and salaries to employ people, and purchase inputs, to produce and market goods and services with the intention of making a profit
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Offshoring
The relocation of part of a firm's activities outside of the national boundaries in which it operates. It can take place within a multinational company or many involve outsourcing production to other firms