Economic Efficiency and Market Mechanisms

These flashcards cover key concepts related to economic efficiency, equity, price mechanisms, and market adjustments based on the provided lecture notes.

Efficiency

Maximizing total output or making the economic 'pie' as large as possible.

Equity

Distribution of resources across society, ensuring a fair share for all.

Trade-off between efficiency and equity

The balance between measures to make distribution fairer and the impact they may have on overall efficiency.

Role of Prices

Prices act as signals to guide the allocation of resources in a market.

High prices

Attract producers to enter the market.

Low prices

Signal producers to exit the market.

Equilibrium price

The price at which the quantity demanded equals the quantity supplied.

Deadweight Loss

The loss in total welfare that occurs when a market is not operating efficiently, often due to market distortions.

Pareto Efficiency

A state where resources are allocated in the most efficient manner, making at least one individual better off without making anyone else worse off.

Market Adjustments

The effects of entry and exit of firms on the market supply curve and prices in the long run.