Session Overview
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Models are easy to construct, but they may not always exactly match reality. While we assume that firms maximize profits, this may not always be true, and in this lecture we start to learn why. We also start to think about how we can measure the welfare that consumers gain from participating in a market. Stocks and stock options are commonly used to overcome the agency problem. Image courtesy of Lance Ball on Flickr. |
Keywords: Agency problem; corporations; stock options; normative economics; welfare economics; consumer surplus.
Session Activities
Readings
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
- [Perloff] Chapter 8, "Competitive Firms and Markets." (optional)
Lecture Videos
View Full Video
- Lecture 12: Competition III (00:45:05)
- Transcript (PDF)
View by Chapter
- The Agency Problem (00:11:25)
- CEO Compensation: Stocks and Stock Options (00:05:22)
- Negative Impact of CEO Compensation Structure (00:12:51)
- Introduction to Welfare Economics: Individual Consumer Surplus (00:15:24)
Resources
Check Yourself
Concept Quiz
This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.