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

A

warranty

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

A

cosigner

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
Q

Reduction in marginal external cost (MEC) - profit loss

A

net social gain

26
Q

net social gain + loss of profits

A

reservation option

27
Q

A tax or subsidy designed to counteract the effects of externalities

A

Pigouvian tax/subsidy

28
Q

Laws which specify allowable quantities of pollution and which also may detail which pollution-control technologies companies must use

A

command-and-control regulation

29
Q

A tax imposed on the quantity of pollution that a firm emits

A

pollution charge

30
Q

The legal rights of ownership on which others are not allowed to infringe without paying compensation

A

property rights

31
Q

A liability (cost) of an economic decision that is not specified in a contract; result in overproduction or overuse compared to an efficient outcome

A

negative external effects

32
Q

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.

A

external effects

33
Q

Benefits of an economic decision that are not specified in a contract; result in underproduction or underuse compared to an efficient outcome

A

positive external effects

34
Q

The marginal cost to a decision-maker for engaging in production

A

marginal private cost (MPC)

35
Q

Costs imposed by decision-maker on society

A

marginal external cost (MEC)

36
Q

The full cost to society; marginal private cost (MPC) + marginal external cost (MEC)

A

marginal social cost (MSC)

37
Q

When there is an inefficient allocation or production of goods or services within the market

A

market failure

38
Q

when contracts cannot specify all possible actions in an enforceable way

A

incomplete contracts