Chapter 2: The Modern Mixed Economy Flashcards
What is a market?
A market is a place where buyers and sellers meet to determine prices in order to exchange goods, services and assets.
What is a market equilibrium?
A market equilibrium represents a balance among all the different buyers and sellers
What happens under perfect market competition conditions?
Under perfect competition and with no market failures, markets will squeeze as many useful goods and services out of the available resources as possible.
Market failure:
Market failure occurs when the price mechanism fails to allocate resources efficiently, or when the price mechanism fails to function altogether.
Give examples of market failures:
asymmetric information, concentrated market power, public goods and externalities.
What are the balance wheels of the market´s mechanism?
Prices are the balance wheel of the market mechanism.
3 main economic functions of government:
-Increase efficiency;
-Promote equity by using tax and expenditure programs to redistribute income toward particular groups;
-Foster macroeconomic stability and growth – reducing
unemployment and inflation while encouraging economic growth.
through fiscal and monetary policy.
How does the government increase efficiency?
Governments increase efficiency by promoting competition, curbing externalities like pollution, and providing public goods.
Imperfect competition:
Buyers or sellers can affect a good’s price.
Public goods:
Commodities for which the cost of extending the service to an additional person is zero and which it is impossible to exclude individuals from enjoying.
How does the government promote equity?
Governments promote equity by using tax and expenditure programs to redistribute income toward particular groups.
How do governments foster economic stability and growth?
Governments promote equity by using tax and expenditure programs to redistribute income toward particular groups.
Welfare state:
is a system in which markets direct the detailed activities of day-to-day economic life while government regulates social conditions and provides pensions, health care, and other necessities for poor families.
