Government intervention in the economy

What is optimum allocation?

resources used efficiently

What is equitable distribution?

fair spread of income and wealth

What is economic stability

steady growth and low inflation

What is the price ceiling?

the maximum price that can be charged for a particular commodity

When is a price ceiling implemented?

When the market price for some items is too high

What is a price floor?

the minimum price that can be charged for a particular commondity

When is a price floor implemented?

when the market price for some items is too low

What does non-excludable mean for a public good?

it cannot exclude people from the benefit of the good, it cannot ensure all users pay, therefore no incentive for the private sector to provide

What does non-rival mean for a public good?

one person’s enjoyment does not diminish the potential for others enjoyment

What is a merit good?

are goods that benefit the whole community, not only individuals who gain direct benefits

What is a demerit good?

a good that brings harm to the community

What is a collective good/service

It is provided by the government to benefit the whole community

What is a natural monopoly?

goods that can only efficiently be provided by one supplier

What is absolute poverty?

when individuals earn an income below the minimum income benchmark (poverty line)

What is relative poverty?

when an individual earns an income below the average standard of living compared to the rest of the population as a whole

What are externalities (spill overs)?

external costs and benefits of private actions on the community as a whole, which are not fully reflected in market prices

What are positive externalities?

external benefits not considered in the decision making process that can be good for third parties

What are negative externalities?

harmful spillover effects of production and other economic activities on the economy

What is a monopolisation?

market power used to eliminate and prevent potential competiters

What is price discrimination?

firms that sell the same type of goods in different markets at different prices

What is exclusive dealing?

firms set supply conditions excluding retailers from dealing with competitors

What is collusion and market sharing

firms agree on pricing and market sharing arrangements to reduce competition between them and to inhibit entry of potential competition

What is the aim of macroeconomic policy?

to influence the entire economy, and to provide counter balance to the business cycle

What are microeconomic reform policies designed to do?

improve work practices and productivity at individual firms/industry level and to promote structural adjustment