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POLLUTION RIGHTS MARKET: A market-based system for the exchange of permits or "rights" to release pollution residuals into the environment. These pollution permits would be bought and sold in an organized market not unlike the stock market. Prices would vary according to the forces of supply and demand, allowing individual participants to buy and sell based on their particular circumstances. The total number of permits would be based on the amount of permissible pollution residuals that can be safely released into the environment during a given period of time. These permits could be given away or auction off to potential polluters.

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Lesson 4: Production Possibilities | Unit 1: Getting Started Page: 2 of 24

Topic: Assumptions <=PAGE BACK | PAGE NEXT=>

Every economic analysis builds on certain preconditions or assumptions. Assumptions, whether reasonable or seemingly unrealistic, let us:
  1. Establish abstract benchmarks for comparison or
  2. Break an analysis into simpler, more easily manageable parts.

Four key assumptions:

  • Two Goods: Resources are used to produce one or both of only two goods. This is a simplifying assumption that lets us display graphs on the screen.
  • Fixed Resources: The quantities of the labor, capital, land, and entrepreneurship resources do not change. This is a reasonable assumption that we can change to analysis resource changes.
  • Fixed Technology: The information and knowledge that society has about the production of goods and services is fixed. This is another reasonable assumption that we can change to analysis technology changes.
  • Technical Efficiency: Resources are used in a technically efficient way. We get the maximum possible production out of the resource inputs.

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AVERAGE FACTOR COST AND MARGINAL FACTOR COST

A mathematical connection between average factor cost and marginal factor cost stating that the change in the average factor cost depends on a comparison between average factor cost and marginal factor cost. For perfect competition, with no market control, marginal factor cost is equal to average factor cost, and average factor cost does not change. For monopsony and other firms with market control, marginal factor cost is greater than average factor cost, and average factor cost rises.

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Today, you are likely to spend a great deal of time at a garage sale trying to buy either a coffee cup commemorating the 2000 Olympics or a birthday gift for your grandmother. Be on the lookout for empty parking spaces that appear to be near the entrance to a store.
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Before 1933, the U.S. dime was legal as payment only in transactions of $10 or less.
"It is not because things are difficult that we do not dare; it is because we do not dare that they are difficult. "

-- Seneca, statesman, dramatist, philosopher

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