Chapter 5 Flashcards
Internal costs/ benefits
The costs/ benefits gained by economic agents for producing or consuming a product
External costs and benefits
The cost / benefits gained by other economic agents in society for producing or consuming a product
Complete market failure
Is when there is a missing market
Asymmetric information
Is when one party knows more than another party
Social costs
Is the sum of private costs and external costs.
Demerit good
Where a goods production or consumption has negative externalities on consumer
Economic welfare
Quality of life of population
Free-rider problem
Once a public good is produced there is no control over who benefits from it
Where people who don’t pay for the food receive benefits from it like people who pay for the good. This leads to under provided public goods as there is no profit gained since consumers don’t see a purpose to paying for the good.
Government intervention
When a government actively intervenes and affects market operation
Immobility of factors of production
When it’s hard for factors of production to move to different areas across the economy
Imperfect information
Is when an economic agent doesn’t have the necessary or correct information to make to make informed decisions on a good or service
Incentive
Is something that motivates an agent in the economy
Income inequality
Is the difference in size of earning between households/ individuals
Market distortions
Is when inference with the market affects behaviour and prices/ output
Market economy
Is when the price and output is determined by workings of supply and demand
