Chapter 9: Factor Markets, Market Failure, and the Role of the Government

Marginal revenue of product labor

revenue generated by one additional unit of labor

Marginal utility

utility gained from consuming one more unit of a good

Total utility

sum of all marginal utility values gained from each unit consumed

Consumer surplus

value a buyer receives from the purchase of a good in excess of what the customer pays for it

Vertical merger

merger of firms during steps in the production process

Conglomerate merger

merger of firms from unrelated industries

Horizontal merger

merger of direct competitors

Monopsony

when one firm is the only purchaser of labor

Marginal factor cost (MFC)

additional cost of one more unit of labor

Social efficiency

faire and optimized allocation of economic resources in a society

Natural monopolies

created when fixed costs are so high → second firm cannot enter the market

Market failure

when resources are not allocated in an optimal manner

Externalities

costs/benefits felt beyond those causing the effects

Public goods

goods that many individuals benefit from at the same time

Imperfect information

buyers/sellers do not have complete knowledge about available markets, prices, products, costumers, suppliers

Marginal private cost (MPC)

cost paid by the customer for a unit of good

Marginal external cost

cost paid by other people (aside from the buyer) for a unit of good

Nonrival good

consumption of that good does not affect consumption by others

Nonexcludable goods

cannot be held back from those who want it

Free rider

attempts to benefit from public good without paying for it

Gini coefficient

uses Lorenz curve to calculate income equality

Poverty line

official benchmark for poverty