Economic Concepts & Resource Allocation Flashcards
What does efficiency require?
Allocative efficiency, operational/ adaptive efficiency, info efficiency
What is Pareto optimality?
Efficient allocation of resources to society, not possible to make a change that will make some better off than others.
Making of a fuller resource graph. What does the point inside mean?
An inefficient use of a resources.
What does the point outside of the filler use of resource graph mean?
Impossible to make.
PPF examines what to produce such as?
Feasible vs In feasible. Possibilities. Efficient production. Trade offs and opportunity costs Diminishing returns Expansion of resources
What is an efficient allocation of resources?
Is one from which it is not possible to make a change that will make some better off than others.
What is Adam smiths concept and from what year?
Invisible hand - 1776
What sort of profits can only be made in an efficient market
Normal profits.
Name an inefficient market.
Housing market. Due to excess profits being made therefore will not ever be inefficient.
Name aspects of the efficiency case for planning.
Society will fail to produce at capacity.
Some groups will be disadvantaged.
JM Keynes quote on gov intervention.
“The important thing for government is not to do things which individuals are doing already and do them a little better or worse, but those things which at present are not done at all”
What is crowding out?
State uses resources which private sector businesses could have employed.
When do externalities exist?
Exist whenever the behaviour of individuals or groups impose costs on others that are not reflected in market transactions
Why is there no incentive for private to pay for public goods?
As one will have to pay for the benefit of all, e.g. Street lights.
Ways to deal with negative externalities?
Policy, taxes.
