Chapter 5 Flashcards
What do non- government controlled markets markets maximize? What (Adverb) describes a market?
Markets maximize the TES (Total Economic Surplus) This makes them efficient.
For what three reasons should governments intervene on markets according to economists?
- Establish the basic structure so that markets function properly.
– Correct market failures.
– Broader social goals.
What were the assumptions made in chapter 3?
- No market power (Markets are in perfect competition).
– Symmetric Information (both consumers and producers have the
same information).
– The goods were private goods (Excludable and Rivalrous)
– There was no externalities.
What are the four types of market failures?
– Market Power.
– Asymmetric Information.
– Public Goods (Non-Excludable and Non-Rivalrous)
– Externalities.
Francis Michaud 7
What types of economies have market power?
Monopoly, Oligopoly and Monopolistic
Competition
What is a public good?
Most goods are private goods; they are excludable and rivalrous.
When may government intervention be needed on public goods? Give examples of these goods.
The government may need to intervene when goods are either non-excludable or non-rivalrous. Examples of non excludable is fishing, an example of non-rivalrous is a movie theater or a college class.
What is an Externality?
An externality, is a situation where the
consumption/production of a good affects a third part (that is
not the producer/consumer)
What are the two types of externalities? Give examples.
The two types of externalities are positive externalities and negative externalities. A positive externality is when you help others positively as a consequence of doing something. An example of a positive externality is the production of honey, the bees go around and help out the farmer’s crops. A negative externality is something that impacts a person or people who are uninvolved in a situation for example when you smoke in a public place, this will have negative health consequences for the people around you.
What is a rivalrous good? Give an example.
A rivalrous good is a good that can only be consumed by one person at once. For example if I buy a cupcake and I eat it, the cupcake is gone and no one else can enjoy that cupcake.
What is a non rivalrous good? Give an example.
A non rivalrous good is a good that more than one person can enjoy at once. For example, if I buy one ticket to a movie, other people can still buy tickets to the same movie.
What is an excludable good? Give an example.
An excludable good is when it’s cost effective and legal to exclude some people for example, college is an example of an excludable good because the college can only accommodate so many students in each physical classroom.
