Chapter 15 Flashcards
Adverse selection
A situation in which asymmetric information about quality eliminates high-quality good s from a market
Asymmetric Information
a situation in which one party to a transaction has relevant information not known by the other party
Average cost pricing
Setting a monopoly’s regulated price equal to long run average cost where the LRATC curve crosses the market demand curve
Coarse Theorem
When a side payment can be arranged without cost, the market will solve an externality problem- and create the efficient outcome- on its own
Common resource
A nonexcludable and rival good. Generally available free of charge, though efficiency would require a positive price
Excludability
The ability to exclude those who do not pay for a good from consuming it
Externality
A by product of consuming or producing a good that affects someone other than the buyer or seller
Free-Rider Problem
When everyone tries to enjoy the benefits of a nonexcludable good without paying, so firms cannot provide it
Marginal Cost pricing
Setting a monopoly’s regulated price equal to its marginal cost of production at the efficient quantity
Marginal Social Benefit (MSB)
The full benefit provided by another unit of a good, including the benefit to the consumer and any benefits enjoyed by third parties
Marginal Social Cost (MSC)
The full cost of producing another unit of a good, including the marginal cost to the producer and any harm caused to third parties
Market Failure
A market that operates inefficiently without government intervention
Marketable Public Good
An excludable and nonrival good. Generally provided by the market for a price, though efficiency would require a price of zero
Moral hazard
when someon is protected from paying the full costs of their harmful actions and acts irresponsibly, making harmful consequences more likely
Principal-Agent Problem
When one party (the principal) hires another (the agent), who in turn can pursue goals that conflict with the principal;s because of asymmetric information
