Factor Markets and Market Failure & Role of Government

Derived Demand

Demand for resources depends on demand for final goods.

Marginal Revenue Product (MRP)

Extra revenue from hiring one more input

Labor Market Equilibrium

Where labor demand meets labor supply.

Externalities

Costs/benefits spill over to third parties.

Negative Externality

Cost to society (pollution).

Positive Externality

Benefit to society (education).

Marginal Social Cost (MSC)

Total cost to society from production.

Marginal Social Benefit (MSB)

Total benefit to society from consumption.

Public Goods

Non-rival and non-excludable (national defense).

Private Goods

Rival and excludable.

Free-rider Problem

People benefit without paying for public goods.

Antitrust Policy

Government actions to prevent anti-competitive behavior.

Regulation

Government rules to correct market failures.

Lorenz Curve

Shows income distribution.

Gini Coefficient

Measures inequality (0 = equal, 1 = total inequality).