Week_3_Market__Govt_Policies__Efficiency

Market

A market is any place where buyers and sellers meet to engage in economic transactions of buying and selling goods and services.

Market economy

An economic system where the forces of demand and supply direct production and distribution of goods and services.

Supply and Demand

Supply is created by sellers, while demand is created by buyers, determining the market price for goods and services.

Private ownership

A feature of a market economy where individuals or businesses have the right to own and use property.

Price Controls

Government-mandated minimum or maximum prices that can be charged for goods and services.

Externalities

Costs or benefits that affect third parties who did not choose to incur those costs or benefits, leading to market failures.

Allocative Efficiency

A situation in which resources are distributed in such a way that maximizes the total benefit received by society.

Invisible Hand

A metaphor introduced by Adam Smith to describe the self-regulating nature of the marketplace.

Negative Externalities

Costs imposed on third parties due to the production or consumption of goods, such as pollution.

Positive Externalities

Benefits received by third parties due to the production or consumption of goods, such as education.

Government Intervention

The involvement of government in the market to correct market failures or achieve more equitable outcomes.

Property Rights

Legal rights to own, use, and transfer property, which encourages investment and innovation.

Market Failure

A situation where the market does not efficiently allocate resources, leading to underproduction or overproduction.

Competition

The rivalry among sellers to attract customers while lowering costs.

Merit Goods

Goods that are under-produced in a free market, which should be provided for by the government as they provide significant positive externalities.

Demerit Goods

Goods that are over-produced in a free market, which can lead to negative externalities.

Scarcity

The fundamental economic problem of having seemingly unlimited wants in a world of limited resources.

Public Goods

Goods that are non-excludable and non-rivalrous in consumption, meaning that people cannot be effectively excluded from using them.

Progressive Tax System

A tax system in which the tax rate increases as the taxable amount increases, aimed at redistributing wealth.