Chapter 3 Flashcards
Market failure can be four types
1) assymetric information
2) public goods
3) monopolies
4) externalities
Market failure
occurs when a market no longer organizes production efficiently and thus no longer allocates goods and services to consumers
Assymetric information
One party has better information than the other
Public goods
Are not provided to the marketplace because of two distinct characteristics
1) non excludability-no one can be excluded from consuming the good
2) non rivalry - consumption by one individual does not reduce availability to another
Externalities
Occur when the market does not consider the effect of one activity on another activities
Growth in GDP
Results from
1) increases in population
2) increases in capital stock
3) improvements in technology
Economic activity: expansion
Businesses doing good Start ups doing good Decline in unemployment Strong stock market Stable inflation GDP grows
Economic activity: PEAK
Demand greater than supply Wages rises Inflation rises Interest and bond prices fall Sales falls Stock market falls
Contraction
Economy falls Businesses fall Start ups fail Unemployment rises Stock market weak GDP falls
Recession (trough)
Inflation falls Interest falls Bonds rally Consumption rises Stocks rise
Recovery
Unemployment stabilizes
Inflation declines more
GDP reaches previous peak
Coincidental indicator (now)
GDP Personal income Industrial production Manufacturing and trade sales volume # of employees on non farmer payroll
Leading indicator (future)
Housing starts S&P/TSX composite index Money supply Us index if leading indicators Furniture and appliance sales
Recession
GDP
Employment
Per capita income
Causes of inflation
Increase in salaries and wages Increase in production costs Economy grows (NYSE) High employment Price of imports increases
