Institutions and the Marketplace

Competitive market

A market with many buyers and sellers, free entry and exit, and no externalities

Externality

The benefic enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service

Market Power

The ability to influence the price of a good, service or resource by changing the quantity produced or purchased

Market

Anyplace where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources

Specialization

The practice of using available resources to produce a single good or service rather than multiple goods and services

Property right

The exclusive right to determine how a resource is used

Private property

Property owned by individuals

Common property

Property owned by groups (of individuals, firms, etc.)

Public property

Property owned by government

Rule of law

A system where a society enforces property rights, contracts, and other rules according to an established and uniform set of laws and judicial system instead of arbitrary decisions

Rule of Men

A system where the rules are enforced by the goodwill of the enforcer, such as a monarch or other ruling group

Rule of force

A system where the strong enforce the rules according to their whim, also known as “might makes right”

Entrepreneur

A person who organizes resources, like land, labor and capital to develop a new product or method of production and assumes the risk of bringing it to the market

Financial institution

A firm that provides financial services, such as accepting deposits and providing loans to its customers