Chapter 12 - General Equilibrium and the Efficiency of Perfect Competitiion

Question 1

partial equilibrium analysis

Answer 1

The process of examining the equilibrium conditions in individual markets and for households and firms separately.

Question 2

general equilibrium

Answer 2

The condition that exists when all markets in an economy are in simultaneous equilibrium.

Question 3

efficiency

Answer 3

The condition in which the economy is producing

what people want at least possible cost.

Question 4

Pareto efficiency or Pareto optimality

Answer 4

A condition in which no change is possible that will make some members of society better off without making some other members of society worse off.

Question 5

market failure

Answer 5

Occurs when resources are misallocated, or

allocated inefficiently. The result is waste or lost value.

Question 6

public goods, or social goods

Answer 6

Goods and services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. The classic example is national defense.

Question 7

externality

Answer 7

A cost or benefit imposed or bestowed on an individual or a group that is
outside, or external to, the transaction.

Question 8

imperfect information

Answer 8

The absence of full knowledge concerning product characteristics, available prices, and so on.