chapter 5 macroeconomics Flashcards
market failure
when the market mechanism leads to a misallocation of resources in the economy either completely failing to provide the good or the wrong quantity
private good
a good that is excludable (can prevent other people from using it) and rival (when it is consumed others cannot use it)
public good
non rivalry non excludable
quasi public good
a good which is not fully rival and or when it is possible to exclude people from consuming a product
externality
external cost that affects third parties
positive externality
occurs when consumption or production or production of a good causes a benefit to a third party. where social benefit is better than private benefit
negative externality
the same as external cost where consumption or production of a good or service leads to a cost on a third party. where social costs is higher than private costs
social benefit
private benefit + external benefit
merit good
social benefits of consumption exceed private benefits
subsidy
a payment made by the government to help keep the product affordable
demerit good
social costs of consumption exceed private costs
social cost
private cost+ external cost
information problem
when people make bad decisions off ignoring information or don’t possess the relevant information
regulation
imposition of rules controls and constraints which restrict freedom of economic action
price ceiling
maximum legal price making it illegal to trade above the price creating excess demand
