Microeconomics Definitions Flashcards
Market Failure
When the free market fails to allocate resources efficiently.
Government Failure
When a government intervention to correct market failure fails to improve or worsens the allocation of resources.
Public Good
A good that is non excludable, non rival in consumption and non rejectable. (quasi-public has some of these things)
5 types of market failure
- underprovision of public goods
- externalities
- monopolies
- misinformation/gaps in info
- inequalities in the distribution of income and wealth
4 types of government failure
- misinformation/gaps in info
- unintended consequences
- disincentives arising from policies
- conflicting objectives
Merit Good
A good that generates positive externalities and is under-consumed in the free market.
Demerit Good
A good that generates negative externalities and is often over-consumed in the free market.
Externality
A cost or benefit of a market transaction that spills over to a 3rd party.
Non Rival in consumption
The consumption of the good by one person doesn’t reduce the amount available for someone else to consume.
Non Rejectable
Once provided, it cant be avoided.
Non Excludable
Once provided, no one can be excluded from benefitting
Normative Statement
Statements that require a judgment to be made.
Positive Statement
Statements that can be tested against real word data
Value Judgement
Statements that are not testable and cant be verified.
Consumer Surplus
A measure of the welfare gained by consuming a good
Producer Surplus
A measure of the welfare gained by producing a good
Joint Supply
An increase or decrease in the supply of one product leads to an increase or decrease in the supply of a by-product
Equilibrium
The price at which supply is equal to demand
Disequilibrium
The price at which supply does not equal demand
Productive Efficiency
When you cant make more of something without making less of something else. (on the PPF boundary)
Allocative Efficiency
When the available economic resources are best used to match consumers preferences.
