ECO320 Midterm - Slides & TB Exam Questions and Verified Answers/Accurate Solutions|
Already Graded A+
What is social surplus? consumer surplus + producer surplus
Advantage & disadvantage of the Law of Primogeniture in England Eldest son inherits entire
state
Unintened Advantage: preserves economies of scale in english farming
Disadvantage: eldest son could be stupid
When can laws outlive their usefulness? They are infect long after the circumstances which
first gave occasion to them, which sometimes makes them unreasonable.
Cooperative surplus The value created by moving a resource to a more valuable use (this
amount is shared btw buyer & seller
= amount values by buyer - amount values by seller
threat value payoofs of the parties in a non-cooperative situation (no deal)
total value of cooperative solution = value of good/service to buyer + amount buyer retains
from original cash + value seller receives for the good
total value of non-cooperative solution = seller's threat value + buyer's threat value
value for buyer in cooperative solution = value of good/service to buyer + amount buyer
retains from original cash
Coase Theorem When transaction costs are 0, an efficient (socially optimal) use of resources
results from private bargaining, regardless of the legal assignment of property rights.
, - No need to worry about specifying legal rules regarding property in order to achieve efficiency
-- Property law is unimportant here
why is property law important when transaction costs are NOT 0? When transaction costs
are high enough to prevent bargaining, the efficient use of resources will depend on how
property rights are assigned.
Net Value of Bargaining = cooperative surplus - transaction costs
what happens if net value of bargaining is (-)ve? parties will not bargain, if they do they will
bargain they will follow the law noncooperatively, which is inefficient
Normative Coase Theorem Structure the law so as to remove the impediments to private
agreements
-- Encourage bargaining, remove obstacles when it comes to allocating resources (lubricate by
lowering transaction costs)
Normative Hobbes Theorem Structure the law so as to minimize the harm caused by failures
in private agreements
-- Try to minimize disagreements & failures to cooperate, which are costly to society (protect
from coercive threats) (allocate to who values it the most)
(making exchange of rights unnecessary & saves cost of transaction)
Under the Normative Hobbes theorem, when should we allocate legal rights based on who
values it most and when should we follow precedent IC --> information costs of court
determining who values what legal right the most
TC --> transaction cost of trading legal rights
IC < TC --> allocate the legal right initially to the person who values it the most
IC > TC --> strictly follow precedent
Already Graded A+
What is social surplus? consumer surplus + producer surplus
Advantage & disadvantage of the Law of Primogeniture in England Eldest son inherits entire
state
Unintened Advantage: preserves economies of scale in english farming
Disadvantage: eldest son could be stupid
When can laws outlive their usefulness? They are infect long after the circumstances which
first gave occasion to them, which sometimes makes them unreasonable.
Cooperative surplus The value created by moving a resource to a more valuable use (this
amount is shared btw buyer & seller
= amount values by buyer - amount values by seller
threat value payoofs of the parties in a non-cooperative situation (no deal)
total value of cooperative solution = value of good/service to buyer + amount buyer retains
from original cash + value seller receives for the good
total value of non-cooperative solution = seller's threat value + buyer's threat value
value for buyer in cooperative solution = value of good/service to buyer + amount buyer
retains from original cash
Coase Theorem When transaction costs are 0, an efficient (socially optimal) use of resources
results from private bargaining, regardless of the legal assignment of property rights.
, - No need to worry about specifying legal rules regarding property in order to achieve efficiency
-- Property law is unimportant here
why is property law important when transaction costs are NOT 0? When transaction costs
are high enough to prevent bargaining, the efficient use of resources will depend on how
property rights are assigned.
Net Value of Bargaining = cooperative surplus - transaction costs
what happens if net value of bargaining is (-)ve? parties will not bargain, if they do they will
bargain they will follow the law noncooperatively, which is inefficient
Normative Coase Theorem Structure the law so as to remove the impediments to private
agreements
-- Encourage bargaining, remove obstacles when it comes to allocating resources (lubricate by
lowering transaction costs)
Normative Hobbes Theorem Structure the law so as to minimize the harm caused by failures
in private agreements
-- Try to minimize disagreements & failures to cooperate, which are costly to society (protect
from coercive threats) (allocate to who values it the most)
(making exchange of rights unnecessary & saves cost of transaction)
Under the Normative Hobbes theorem, when should we allocate legal rights based on who
values it most and when should we follow precedent IC --> information costs of court
determining who values what legal right the most
TC --> transaction cost of trading legal rights
IC < TC --> allocate the legal right initially to the person who values it the most
IC > TC --> strictly follow precedent
