Markets and Government Failures

Flashcards covering key concepts related to market functions, failures, and the role of government in economics.

Market

Place where buying/selling happens, e.g., Amazon.

Capitalism

Economic system where people make their own decisions, e.g., choosing what to buy.

Socialism

Economic system where the government controls decisions, e.g., North Korea.

Laissez-faire

Economic approach where the government stays out of the market, e.g., no regulation.

Willingness to Pay (WTP)

Maximum amount someone is willing to pay for a good or service.

Profit

The money obtained after costs are deducted, e.g., selling a hoodie for $30 that cost $10 results in a $20 profit.

Market Failure

When the market does not maximize total benefit, e.g., pollution not reflected in price.

Externality

An effect on others not reflected in costs; negative externality harms others, e.g., pollution; positive externality benefits others, e.g., vaccinations.

Public Goods

Goods that are non-excludable and non-rival, e.g., national defense and clean air.

Free Rider

A person who benefits from public goods without paying for them, e.g., listening to free public radio.

Rent-Seeking

Using government for economic advantage, e.g., companies lobbying for tax breaks.

Moral Hazard

Taking risks due to protections, e.g., banks making risky loans knowing they will be bailed out.

Inequality

Uneven income distribution, e.g., the wealth gap between the rich and the poor.

Intergenerational Mobility

The ability to move up in income, e.g., a poor child becoming a wealthy adult.

Lack of Competition

A market failure where companies do not compete, resulting in high prices and less innovation.

Externalities

Costs or benefits affecting third parties that are not included in the price.

Public Goods

Goods that cannot exclude users and are not depleted by consumption.

State Failure

When government actions worsen conditions, e.g., excessive regulations or corruption.