Chapter 10: MARKET FAILURE Flashcards

1
Q

A good where the positive externalities are so extensive that private firms could not expect to receive any of the social benefits; it is non-rival and may or may not be excludable

A

public good

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2
Q

Use by one person does not reduce availability to others

A

non-rival

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3
Q

A good from which it is impossible to exclude anyone from having access

A

non-excludable

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4
Q

Rival and non-excludable goods

A

common-pool resources

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5
Q

Use by one person reduces availability to others

A

rival

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6
Q

People can be prevented from having access

A

excludable

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7
Q

When people have an incentive to let others pay for a public good

A

free-rider problem

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8
Q

Actions that are not seen by one party; lead to a moral hazard problem

A

hidden actions

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9
Q

Attributes that are not known by one party; lead to adverse selection

A

hidden attributes

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10
Q

When asymmetric information is used and results in a poor selection of goods on the market

A

adverse selection

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11
Q

The conflict of interest that occurs when a principal and agent both want something from one another (e.g., an employer and an employee; an insurance company and a buyer of insurance)

A

principal-agent problem

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12
Q

When someone is approved to borrow less money than they desire

A

credit-constrained

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13
Q

When someone is not approved to borrow money

A

credit-excluded

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14
Q

When either the buyer, the seller, or both, are less than 100% certain about the qualities of what they are buying and selling.

A

imperfect information

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15
Q

An agreement that functions as a promise of quality

A

money-back guarantee

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16
Q

A promise by the seller to fix or replace a purchased good, at least for a certain time period

17
Q

When the buyer pays an extra amount and the seller agrees to fix anything that goes wrong for a set time period

A

service contract

18
Q

Licenses typically issued by government agencies to show that a worker has completed a certain type of education or passed a certain test

A

occupational licenses

19
Q

Another person or firm who legally pledges to repay some or all of the money from a loan if the original borrower does not do so

20
Q

Often property or equipment that the bank would have a right to seize and sell if borrower does not repay a loan

A

collateral

21
Q

Where one party engages in risky behavior because it knows it is protected, so the other party will bear the cost

A

moral hazard

22
Q

When two parties involved in an economic transaction have an unequal amount of information (one party knows much more than the other)

A

asymmetric information

23
Q

Markets for certain goods or services that would violate ethical or social norms (e.g., slavery)

A

repugnant markets

24
Q

Regulatory tools that allocate privileges to firms in order to limit undesirable activity (e.g., polluting)

A

marketable permits

25
Reduction in marginal external cost (MEC) - profit loss
net social gain
26
net social gain + loss of profits
reservation option
27
A tax or subsidy designed to counteract the effects of externalities
Pigouvian tax/subsidy
28
Laws which specify allowable quantities of pollution and which also may detail which pollution-control technologies companies must use
command-and-control regulation
29
A tax imposed on the quantity of pollution that a firm emits
pollution charge
30
The legal rights of ownership on which others are not allowed to infringe without paying compensation
property rights
31
A liability (cost) of an economic decision that is not specified in a contract; result in overproduction or overuse compared to an efficient outcome
negative external effects
32
The effects of an economic decision on a third party who is outside of the exchange; effects are not specified as benefits or liability (cost) in a contract. Also called a spillover.
external effects
33
Benefits of an economic decision that are not specified in a contract; result in underproduction or underuse compared to an efficient outcome
positive external effects
34
The marginal cost to a decision-maker for engaging in production
marginal private cost (MPC)
35
Costs imposed by decision-maker on society
marginal external cost (MEC)
36
The full cost to society; marginal private cost (MPC) + marginal external cost (MEC)
marginal social cost (MSC)
37
When there is an inefficient allocation or production of goods or services within the market
market failure
38
when contracts cannot specify all possible actions in an enforceable way
incomplete contracts