Micro 1.4 Flashcards
(41 cards)
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
