definitions Flashcards
price mechanism
interaction of demand and supply to allocate resources
define market failure
Where the free market mechanism fails to achieve economic efficiency
definition of division of labour
division of labour occurs when workers specialize in very specific tasks
Define Social Costs
Social cost is the total cost to society; it includes both private and external costs.
With a negative externality which is mostly effected Social Or Private Cost?
- Social Cost > Private Cost
Define Allocative efficiency?
Allocative efficiency exists where consumer satisfaction is maximised. Where the quantity supplied equals the quantity demanded and resources are being used most effectively to satisfy consumers wants
What is economic efficiency?
Where both productive and Allocative efficiency are satisfied
What are external costs?
The costs borne by a third party or to society as a whole
What are private costs?
the cost to the firm from the production of a good or service
What are private benefits?
They are benefits that accrue directly to the decision makers
What are external benefits?
They are the benefits accrued to a third party or to society as a whole
What is the social benefit?
Social benefit = Private benefits + External benefits The full benefits to the society of production or consumption of any good
Define information failure?
Information failure occurs when a lack of information results in consumers and/or producers making decisions that do not maximise their welfare
Define non-excludable?
Non-excludable means that an individual cannot be prevented from consuming the good or service
Define non-rival?
Non-rival means that consumption by one person doesn’t reduce the amount available for consumption by others
