Economics: Market Failure, Elasticity, and Labour Markets

Vocabulary flashcards covering core topics in microeconomics including market failure, price elasticity of demand and supply, and labour wage determination based on lecture notes.

Market Failure

Refers to the disadvantages of the market system, occurring when the private sector fails to allocate resources efficiently.

Socially Efficient Output

The market optimal output level that is most desirable, occurring where social benefit equals social cost ($\text{Social Benefit} = \text{Social Cost}$) and social welfare is maximized.

Social Cost

The total cost to society from economic activity, defined as: $\text{Social Cost} = \text{Private Cost} + \text{External Cost}$.

Social Benefit

The total benefit to society from economic activity, defined as: $\text{Social Benefit} = \text{Private Benefit} + \text{External Benefit}$.

Public Goods

Non-excludable goods that private firms have no incentive to provide because they cannot charge users for them.

Merit Goods

Goods that are under-provided and under-consumed by the market mechanism.

Demerit Goods

Goods that are over-provided and over-consumed by the market mechanism.

Free Rider Problem

An economic concept of market failure that occurs when individuals benefit from resources, goods, or services without paying for them.

Price Elasticity of Demand (P.E.D)

A measure of the responsiveness of the change in quantity demanded to a given change in price.

Luxury Good

In P.E.D context, a commodity for which a small price change will cause demand to rise or change by a larger amount.

Necessity Good

In P.E.D context, a commodity for which even a large change in price results in demand hardly changing.

Percentage Change Formula

The formula used to calculate percentage change in price or quantity: \%\n\Delta = \frac{\text{New} - \text{Old}}{\text{Old}} \times 100.

Perfectly Inelastic Supply ($PES = 0$)

A condition where price elasticity of supply equals zero ($PES = 0$) and the supply curve is parallel to the y-axis.

Perfectly Elastic Supply ($PES = \infty$)

A condition where price elasticity of supply is infinity ($PES = \infty$) and the supply curve is parallel to the x-axis.

Storage / Spare Capacity

A factor influencing price elasticity of supply (PES), where goods easily stored in warehousing facilities have elastic supply, while goods that cannot be stored have inelastic supply.

Wage Rate

A sum of money paid to a worker under contract for services rendered, determined in the labour market by the interaction of demand for and supply of labour.

Derived Demand

The nature of demand for labour, meaning it depends directly on the demand for the goods or services that workers help produce.

Skilled Worker

A worker who invests significant time and money in education, training, and qualifications, resulting in high market demand and low market supply, commanding higher wages.

Unskilled Worker

A worker who requires no investment in higher education or lengthy training periods, resulting in high market supply and low market demand, earning lower wages.