ECO320 Exam Questions and Verified Answers/Accurate Solutions| Already Graded A+
Aspects of Transaction costs? Search, Bargaining, Enforcement
What is production efficiency? (2) - Cannot produce more with same inputs
- Cannot produce same with less inputs
Allocative Efficiency Not possible to make one person better without making others worse
What are the two (2) main approaches economists use to define efficiency Pareto Optimal
and Cost Benefit
Pareto Optimal Similar/same as allocative efficiency
- Make A better without making B worse
Cost Benefit Making A better so that it outweighs the cost to B
Theorem of Coase When transaction cost are zero, an efficient (socially optimal) use of
resources results from private bargaining, regardless of the legal assignment of property rights
Converse (High transaction cost) Theorem of Coase When transaction costs are high enough
to prevent bargaining, the efficient use of resources will depend on how property rights are
assigned
Normative Coase Theorem Structure the law as to remove the obstacles to private
agreements (lawyers, high transactions costs, etc)
Normative Hobbes Theorem Structure the law so as to minimize the harm caused by failures
in private agreements
, Injunction Order to stop creating an externality
Tragedy of the Commons - An inexorable process of degradation of communal resources
due to the selfishness of "free riders" who use or destroy more than their fair share of common
property.
Bargaining Principle Denies enforcement of a contract when the promise did not arise from
bargaining
English Rule • The loser in a law suit must pay the winner's legal fees
Invariant Theorem of Coase In the absence of transaction costs, the initial agreement of
property rights does not determine who will end up with that right, property rights only dictate
how compensation will be allocated
Variant Theorem of Coase Resource allocation will be efficient, but not identical, regardless
of property rights
Just Compensation Amount owed to an individual after property is taken by govt.
Statute of Limitations The time within which legal action can be taken
Continuous Rule in Property Rights A person gradually loses property rights (ie. 10% per
year), less efficient that discontinuos
Discontinuous Rule in Property Rights Person immediately loses all property rights after
specified time, more efficient than continuous rule
Aspects of Transaction costs? Search, Bargaining, Enforcement
What is production efficiency? (2) - Cannot produce more with same inputs
- Cannot produce same with less inputs
Allocative Efficiency Not possible to make one person better without making others worse
What are the two (2) main approaches economists use to define efficiency Pareto Optimal
and Cost Benefit
Pareto Optimal Similar/same as allocative efficiency
- Make A better without making B worse
Cost Benefit Making A better so that it outweighs the cost to B
Theorem of Coase When transaction cost are zero, an efficient (socially optimal) use of
resources results from private bargaining, regardless of the legal assignment of property rights
Converse (High transaction cost) Theorem of Coase When transaction costs are high enough
to prevent bargaining, the efficient use of resources will depend on how property rights are
assigned
Normative Coase Theorem Structure the law as to remove the obstacles to private
agreements (lawyers, high transactions costs, etc)
Normative Hobbes Theorem Structure the law so as to minimize the harm caused by failures
in private agreements
, Injunction Order to stop creating an externality
Tragedy of the Commons - An inexorable process of degradation of communal resources
due to the selfishness of "free riders" who use or destroy more than their fair share of common
property.
Bargaining Principle Denies enforcement of a contract when the promise did not arise from
bargaining
English Rule • The loser in a law suit must pay the winner's legal fees
Invariant Theorem of Coase In the absence of transaction costs, the initial agreement of
property rights does not determine who will end up with that right, property rights only dictate
how compensation will be allocated
Variant Theorem of Coase Resource allocation will be efficient, but not identical, regardless
of property rights
Just Compensation Amount owed to an individual after property is taken by govt.
Statute of Limitations The time within which legal action can be taken
Continuous Rule in Property Rights A person gradually loses property rights (ie. 10% per
year), less efficient that discontinuos
Discontinuous Rule in Property Rights Person immediately loses all property rights after
specified time, more efficient than continuous rule
