Micro 1.4 Flashcards
What is market failure?
When the price mechanism leads to an inefficient allocation of resources and a deadweight loss of economic welfare
What is complete market failure?
When the market does not supply products at all, there is a missing market
What is partial market failure?
When the market functions but it supplies at the wrong quantity or price
What is the economic welfare calculation?
Consumer surplus + Producer surplus
What is a public good?
A good that is non-rival in consumption, non-excludable and non-rejectable
What is a non-excludable good?
A good that cannot be solely confined to those who payed for it
What is a non-rival consumption good?
A good where one party’s enjoyment of the good or service does not diminish others’ enjoyment
What is a non-rejectable good?
The collective supply of a pure public good for all means that it cannot be rejected by people
What is the free rider problem?
Individuals having an incentive to use a good without contributing towards cost
What is a quasi-public good?
A near public good, it has some characteristics of a public good
What is a semi-non-rival good?
A good that is non-rival up to a point
What is a semi-non-excludable good?
A good that is difficult to exclude non-paying consumers from
What is a public bad?
A good that has negative externalities leading to a loss of economic welfare
What is a global public good?
A good that benefits all countries
What is the tragedy of the commons?
The pursuit of individual self-interest that is not good for social efficiency leading to a long term depletion of a commonly owned resource
What is an externality?
The spill-over effects from production or consumption for which there is no appropriate compensation paid or received
What is a private cost?
The costs faced by the producers or consumers directly involved in a transaction
What is a private benefit?
The benefits for the producers and or consumers directly involved in a transaction
What is the social cost?
private costs + external costs
What is the social benefit?
private benefit + external benefit
When does a negative externality exist?
private > social
When does a positive externality exist?
social > private
What is a negative externality in production?
MPC > MSC
What is a negative externality in consumption?
MPB > MSB
What are the government solutions for market failure?
Taxation, subsidising alternatives, trade rights, minimum price and banning
What is a positive externality?
3rd party spillover benefits
What is a value judgement?
A normative statement/ opinion
What is the free market?
The market running without government intervention
What is a positive externality in consumption?
MSB > MPB
What is a positive externality in production?
MSC > MPC
What is a merit good?
A good/service the government feels people under-consume
What is regulation?
application of law by government or regulatory agencies for various economics-related purposes
What is occupational immobility?
Difficulty moving from type of work to another (skills/abilities not transferable)
What is geographical immobility?
Difficulty moving from one area to another (location)
What is structural unemployment?
When there are significant changes in the pattern of employment in the economy
What is persistent relative poverty?
Long term unemployment damaging lifetime earnings and areas with low mobility being more likely to suffer economic deprivation
What is a pure monopolist?
A single seller in a market (tends to happen when industry is state owned)
What is a working monopoly?
When a firm in a market has more than 25% of the total sales
What is a dominant monopoly?
When a firm in the market has more than 40% of total sales
What is an opipology?
When there is the existence of several dominant firms in the market
What is a duopoly?
When two firms take the majority of demand
