Chapter 32 - Efficiency And Market Failure Flashcards

1
Q

Economic Efficiency

A

Where scarce resources are used in the most efficient way to produce maximum output.

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2
Q

Productive Efficiency

A

When a firm is producing at the lowest possible cost.

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3
Q

Allocative Efficiency

A

Where price is equal to marginal cost, firms are producing those goods and services most wanted by consumers.

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4
Q

Marginal Cost

A

The addition of total cost when making one extra unit of output.

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5
Q

Pareto Optimality

A

Where it is impossible to make someone better off without making someone else worse off.

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6
Q

Dynamic Efficiency

A

When Resources are allocated efficiently over time.

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7
Q

Efficiency And Inefficiency

A

Market failures arise because the free market mechanism is not always efficient in the way in which resources are allocated.

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8
Q

Market Failure Occurance

A

1) Externalities
2) Merit and Demerit Goods
3) Provision of public and quasi-public goods
4) Information failure
5) Adverse selection or moral hazard
6) Abuse of monopoly

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