Chapter 10: MARKET FAILURE Flashcards
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
public good
Use by one person does not reduce availability to others
non-rival
A good from which it is impossible to exclude anyone from having access
non-excludable
Rival and non-excludable goods
common-pool resources
Use by one person reduces availability to others
rival
People can be prevented from having access
excludable
When people have an incentive to let others pay for a public good
free-rider problem
Actions that are not seen by one party; lead to a moral hazard problem
hidden actions
Attributes that are not known by one party; lead to adverse selection
hidden attributes
When asymmetric information is used and results in a poor selection of goods on the market
adverse selection
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)
principal-agent problem
When someone is approved to borrow less money than they desire
credit-constrained
When someone is not approved to borrow money
credit-excluded
When either the buyer, the seller, or both, are less than 100% certain about the qualities of what they are buying and selling.
imperfect information
An agreement that functions as a promise of quality
money-back guarantee