Economic Concepts

Microeconomics
Edgeworth Box
o artificially scarce goods
o Under Public Goods
o excludable but non-rivalrous
Quasilinear Preference
o artificially scarce goods
o Under Public Goods
o excludable but non-rivalrous
Numeraire
usually applied to a single good,
which becomes the base good. All
similar goods are then valued and
priced against the base good.

Macroeconomics
Taylor Rule
o A monetary-policy rule that
stipulates how much the central
bank should change the nominal
interest rate in response to
changes in inflation, output, or
other economic conditions.
o In particular, the rule stipulates
that for each one-percent
increase in inflation, the central
bank should raise the nominal
interest rate by more than one
percentage point.
Okuns Law
inverse relationship between
rates of unemployment and GDP
Phillips Curve
inverse relationship between
rates of unemployment and
INFLATION
IS-LM Model
o (Income Spending Liquidity
Preference Money Supply)
o Demonstrates the relationship
between interest rates and real
output, in the goods and services
market and the money market.
Mundell Fleming Model
o an IS-LM model in an OPEN
economy

also called IS-LM BoP model

Labor Economics
Vendor Lock-in
o proprietary lock-in or customer
lock-in
o Makes a customer dependent on
a vendor for products and
services, unable to use another
vendor without substantial
switching costs.
o Examples: SIM cards, automobile
stereos that have unusual
shapes, Gift Certificates

Development Economics
Gini Coefficient
o commonly used as a measure of
inequality of income or wealth.

International Economics
Club
o
o
o

Good
artificially scarce goods
Under Public Goods
excludable but non-rivalrous

Money and Banking

Says Law of Markets
o Production is the source of
demand.
o When an individual produces a
product or service, he or she gets
paid for that work, and is then
able to use that pay to demand
other goods and services.
Lucas Islands Model
o Its purpose is to model the link
between money supply and price
and output changes in a
simplified economy using rational
expectations.
o sought to explain the short term
procyclicality of output and
inflation (the Phillips curve)
while still maintaining the

neoclassical assumption that in

the long run money is a veil and
does not aect output.

Public Economics
Summary

Club Good
o artificially scarce goods
o Public Goods that are excludable
but non-rivalrous
o Examples: private golf courses,
cinemas, cable television, access
to copyrighted works
Tragedy of the Commons
o The depletion of a shared
resource by individuals, acting
independently and rationally
according to each one's selfinterest
o Tragedy: Despite their
understanding that depleting the
common resource is contrary to
the group's long-term best
interests.
Tiebout Model (Voting by feet)
o individuals will move from one
local community to another until
they find the one which
maximizes their personal utility.
o The model states that through
the choice process of individuals,
jurisdictions and residents will
determine an equilibrium
provision of local public goods in
accord with the tastes of
residents, thereby sorting the
population into optimum
communities

Familiarity Hypothesis
o People are more generous to
recipients about whom they have
more information.
Rotten Kid Theorem
o In a family with a breadwinner,
other members also are
motivated to maximize family
income and consumption even
they are selfish.
Pigouvian Tax
o A tax levied on each unit of
polluters output, an amount
equal to the Marginal Damage it
inflicts at the efficient level of
output.
Theory of the Second Best
o In the presence of existing
distortions, policies in isolation
would increase EFFICIENCY, can
decrease it and vice versa.

Pareto Efficient
o

An allocation such that no person

can be made better o without
making the other worse o.

First Fundamental Theorem of

Welfare Economics
o

If there is perfect competition and

a market for each good, a pareto
efficient allocation emerges

Second Fundamental Theorem of

WE
o
o

Explicit value judgements are

required on the fairness of the
distribution of utiliy
An argument supporting the
governments intervention to
markets to achieve fairness

Health Economics
Club Good
o artificially scarce goods
o Under Public Goods

History of Economic Thoughts

Invisible Hand

Used to describe the selfregulating behavior of the

marketplace coined by Adam
Smith
Elinor Ostrom
o First woman economist to win the
Nobel Prize for Economics
Physiocrasy
o an economic theory who believed
that the wealth of nations was
derived solely from the value of
"land agriculture" or "land
development" and that
agricultural products should be
highly priced
Francois Quesnay
o He is known for publishing the
"Tableau conomique"
o one of the first important
contributions to economic
thought
o

Mathematical Economics
Club Good
o artificially scarce goods
o Under Public Goods
o

excludable but non-rivalrous

Econometrics
Gauss-Markov Theorem
o under the CLRM model, OLS
estimators are BLUE

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