Definitions Flashcards
Government failure
Occurs when intervention leads to a misallocation of resources or a reduction in economic welfare
Regulation
Where government intervenes through legislation
Subsidy
A payment usually from the government to producers, or in some cases consumers, of goods and services
Taxation
Compulsory charges by governments on individuals and firms
Indirect tax
Tax levied on expenditure on goods and services
Direct tax
Tax places on income of the people and firms that cannot be avoided
Public good
A good that is collectively consumes and has the characteristics of non-excludability and non-rivalry
Non-excludability
Situation existing where individual consumers can’t be excluded from consumption
Non-rivalry
Where consumption by one person doesn’t affect the consumption of all others
Free rider
Someone who directly benefits from consumption of a public food but doesn’t contribute towards its provision
Quasi-public good
A good having some but not all of the characteristics of a public good (non-excludable but not non-rivalrous)
Private good
A good that is individually consumed and has the characteristics of excludability and rivalry
Information failure
A lack of information resulting in consumers and producers making decisions that do not maximise welfare
Asymmetric information
Information is not equally shared between two parties. A situation where some participants have better information about market conditions than others
Moral hazard
A situation in which a person who has taken out insurance is prone to taking more risk
