Lesson 9 Flashcards
______ occur when goods and services by a market become inefficient or no longer bring in economic efficiency.
Market failures
____________ give an important economic case since markets may not always allocate scarce resources in the most efficient manner to provide maximum social welfare.
Market failures
Most often, they occur because of the inefficient allocation of goods and
services.
Market Failures
In the principal-agent problem, a “______” hires another person which is the “_____”, in the form of a marketing or sales manager, to do task on the principal’s behalf
principal
agent
________ occurs when consumers and producers are not fully aware of the costs and benefits of their decisions. This makes their decisions to be based on incomplete or ________.
Information failure
imperfect information
_______ happens this way. The other side of the party does not know what information the other party may be hiding or keeping, thus the information is not parallel which makes the information asymmetric.
Asymmetric information
______ are spill-over effects from the production and consumption of goods and services without properly compensating those affected by the outcome.
Externalities
Market failures arise from ______
negative externalities.
A good with ________brings higher cost to the society than the cost consumers pay for it.
negative externalities
When costs and benefits affect the private individuals-this means the _______ are solely burdened by the individuals, and the _______ only accrue to him or her- these costs are referred to as private costs and private benefits.
costs
benefits
This occurs when the party with superior information alters his or her own behavior to gain benefits for himself or herself while imposing costs with inferior information.
Moral Hazard
when a good has a negative externality, the cost to society is _____ than the cost a consumer As marginal benefit.
greater
Externalities caused by ______ increases
the social costs of production beyond the private costs shouldered by the factory or the company emitting pollutants.
pollution
______ is earned when producers will make more than just the economic cost of their production
Producer surplus
_____ is the market where transactions are made between a buyer and seller, there is the common expectation that they will mutually benefit from that transaction.
Deadweight Loss
This means that the buyers will receive consumer surplus and the sellers will gain producer surplus.
Deadweight Loss
_____ is the difference between how much the consumer is willing to pay and the price of the product.
Consumer surplus
_____, is equal to the actual sale price of the good less the economic cost of production.
Producer surplus
______ is earned when producers will make more than just the economic cost of their production.
Producer surplus
_______represents the value of transactions that could have been made, but are not actually made.
Deadweight loss
______ can come from price controls, monopoly, and externalities.
Deadweight loss
One way to correct for the problem of negative externality is through _______.
taxation
_____ the producer the amount of negative externality will increase the marginal cost of the producer, which can make them reduce their output.
Taxing
____ lowers the value of transactions to buyers
and sellers.
Tax
________ are simply the benefits, instead of harm, derived by third parties who are not directly involved in an economic transaction
Positive externalities
These are goods and services which the government can subsidize or provide for free such that its consumption will not basically demand or hinge on the consumers ability to pay for the good and service.
Merit Goods
Downside of positive externality is thath the benefeciaries become “____”
free riders
______are goods that can be consumed by everybody in a society or nobody at all They out free of charge as there is no marginal cost in producing a _______.
Public goods
_____ are goods that are distributed not by the means of the price system since its provision does not rest on the ability of consumers to pay but based on the ____need. _____, on the other hand, are goods where consumption does not reduce the quantity consumed by the existing consumers.
Merit goods
Public goods
This means Individuals who do not pay cannot be excluded from the benefits of the good or service
Non-excludable
Non-rival happens when one individual’s consumption of a good does not affect another person’s opportunity to consume the good.
Non-rival
_______ may seek to correct the distortions created by market failure and improve market operations to attain efficiency.
Government intervention
A ______ is a corrective tax levied on each unit of output an agent or source of externality creates.
Pigouvian tax
CHAPTER CUMMARY
READY!!!
_______occur when goods and services by a market become inefficient or no longer bring in economic efficiency.
Market failures
In the principal agent problem, a “______” hires another person-the “____________- for a marketing or sales manager role to perform tasks
principal
agent”
___________ is when the other party does not know what information the other party may be hiding or keeping, thus information is not parallel but asymmetric.
Asymmetric information
_____ occurs when the party with superior information alters his own behavior to gain benefits for himself while imposing costs on inferior information.
Moral hazard
_____ are spillover effects from the production and consumption of goods and services without properly compensating those affected by the outcome.
Externalities
When costs and benefits affect private individuals, meaning the _____ are solely borne by them and the _____only accrue to them, these costs and benefits are referred to as ________ and ______
costs
benefits
private costs and private benefits.
________ is the difference between how much the consumer is willing to pay and the price of the product.
Consumer surplus
________ is the actual sale price of the good less the economic cost of production.
Producer surplus
_______ are simply the benefits, instead of harm, derived by third parties who are not directly involved in an economic transaction.
Positive externalities
______ are goods that can be consumed by everyone in a society or nobody
at all.
Public goods
______refers to Individuals who do not pay and cannot be excluded from
the benefits of the good or service.
Non-excludable
_______ is when one Individual’s consumption of a good does not affect another
person’s opportunity to consume the good.
Non-rival
The government may intervene by:
- Imposing higher taxes to correct externalities (Impose tax to entities that highly
encourage pollution) - Imposing ______ __ ______
- Introducing policies to encourage competition into markets
- Imposing ___ _____
penalties to violators
price controls
