Market failure

Question 1

Factors of productions

Answer 1

The inputs into the production process(Land.labour, capital and entrepreneurship)

Question 2

Allocative efficiency

Answer 2

the best or optimal allocation of resources from society’s point of view. It occurs when the market is in equilibrium and social surplus is maximized. ( where P = MC)

Question 3

Marginal Cost

Answer 3

the change in total cost resulting from a change in output of one unit

Question 4

Resources

Answer 4

the inputs into the production process, the factor of production.

Question 5

Equilibrium

Answer 5

a market is equilibrium where the quantity supplied

is equal to the quantity demanded.

Question 6

Producer surplus

Answer 6

the difference between the price a firm is willing to accept for a unit of output and the and the price the consumer actually pays.

Question 7

Free market

Answer 7

a market where the forces of demand and supply are allowed to operate without any form of intervention.

Question 8

Surplus

Answer 8

occurs when quantity demand is greater than quantity supplied

Question 9

Marginal benefit

Answer 9

is the additional benefit received by a person from the consumption of an additional unit of output.

Question 10

Law of diminishing marginal utility

Answer 10

a theory- stating that the amount of satisfaction gained from the consumption of a good falls as more of the the good is consumed.

Question 11

Demand curve

Answer 11

a graph that shows the relationship between price and quantity demanded.

Question 12

Spillover effect

Answer 12

externalities caused by the consumption of a good that affects people who are not directly involved in its production or consumption.

Question 13

External benefits

Answer 13

Occurs when the production or consumption of a good causes a benefit to third parties.

Question 14

Marginal social benefit

Answer 14

MSB = Marginal private benefit + Marginal external benefit. it is the additional social benefit generated by consumption or production of an additional unit of output.

Question 15

Positive externalities

Answer 15

the existence of positive externalities means that social benefit is greater than private benefit.

Question 16

Private cost

Answer 16

The cost incurred by firms or consumers from their own production or consumption of a good.

Question 17

Quantity supplied

Answer 17

the amount of a good that firms are willing and able to produce at a given period of time.

Question 18

Total cost

Answer 18

the sum of total fixed cost and total variable cost .

Question 19

Diminishing marginal returns to a variable

Answer 19

as more variable factors is added to a quantity of fixed factors the product of each addition unit of the variable factor will, at some point, begin to fall

Question 20

Short run

Answer 20

A period of time when at least one factor is variable and and the others are fixed.

Question 21

Social optimum price

Answer 21

is where MSB =MSC.
The value consumers in society place on consumption of the next unit is equal to the cost of resources used to produce the next unit.

Question 22

Negative externalities

Answer 22

occurs when the production or consumption of a good creates costs that must be paid by third parties. The existence of negative externalities means social cost is greater than private cost.

Question 23

External cost

Answer 23

Occurs when the production or consumption of a good creates a cost that must be paid by third parties.