Unit 6 - Market Failure and the Role of Government Guide

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Negative externality

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55 Terms

1

Negative externality

when someone uses a product, it decreases the benefit of others

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2

Positive externality

when one uses a product, others benefit

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3

Lorenz curve

measures the distribution of income equality (you want to be as close of possible to the perfect equality line as possible)

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4

Regressive

taxes are lower % on people earning a higher income (increases income inequality)

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5

Progressive

axes are higher % on people earning a higher income (reduces income inequality)

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6

Public goods

underproduced due to freeloader problem.

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7

Social efficiency

is when resources are allocated effectively.

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8

Non price regulation

works like taxes, they ensure competition /environmental protection /health and safety.

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9

Lump sum subsidy

gives benefit no matter how many units.

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10

Freeloader problem

people can enjoy the benefit of a good /service without paying.

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11

Proportional

everyone pays the same percentage of their income (no impact on income distribution)

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12

Rivalrous good

if someone consumers a product, others can not.

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13

Per unit subsidy

gives benefits per unit.

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14

Monopolistic competition

becomes MR curve, price and output decreases.

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15

Excludable good

non payers can be prevented from enjoying the benefits.

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16

Antitrust policy

promote competition and prevents monopolies.

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17

Income distribution

measures % of income that goes to individuals in different percentiles /brackets.

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18

Perfectly competitive market

S=D, MB=MC

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19

Perfectly competitive firm

P=MC

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20

Market failure

exists when firms produce at MPC=MPC, S=D

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21

Externality

when external cost/benefit is placed on members of society who did not pay for them

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22

Negative externality

when someone uses a product, it decreases the benefit of others (ex

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23

Positive externality

when one uses a product, others benefit  (ex

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24

Rivalrous good

if someone consumers a product, others cannot

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25

Rivalrous

food, shoes, etc

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26

Nonrivalrous

national defense, fireworks, etc

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27

Excludable good

non payers can be prevented from enjoying the benefits

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28

Excludable

food, school, etc

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29

Nonexcludable

national defense, air, etc

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30

Public goods

underproduced due to freeloader problem

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31

Freeloader problem

people can enjoy the benefit of a good/service without paying

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32

Private goods

goods produced by private markets, can be excludable

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33

Per unit subsidy

gives benefits per unit

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34

Perfect competition

MC, ATC, AVC decreases, price doesnt change (price taker)

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35

Monopolistic competition

MC, ATC, price decreases (price maker @ MR=MC)

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36

Lump sum subsidy

gives benefit no matter how many units

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37

Per unit tax

increase MC, ATC, and AVC

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38

Perfect competition

MC, ATC, AVC increases, price doesnt change (price taker)

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39

Monopolistic competition

MC, ATC, price increases (price maker @ MR=MC)

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40

Lump sum tax

only increase ATC

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41

Non price regulation

works like taxes, they ensure competition/environmental protection/health and safety

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42

Antitrust policy

promote competition and prevents monopolies

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43

Price ceiling

sets minimum price

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44

Perfect competition

causes shortage

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45

Monopolistic competition

becomes MR curve, price and output decreases

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46

Price floor

sets maximum price

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47

Perfect competition

leads to surplus

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48

Monopsony

wages go up and workers go up

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49

Income distribution

measures % of income that goes to individuals in different percentiles/brackets

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50

In a system with perfectly equality

everyone would receive equal shares of income

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51

Income

wages, rent, interest, profit

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52

Lorenz curve

measures the distribution of income equality  (you want to be as close of possible to the perfect equality line as possible)

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53

Proportional

everyone pays the same percentage of their income (no impact on income distribution)

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54

Progressive

taxes are higher % on people earning a higher income (reduces income inequality)

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55

Regressive

taxes are lower % on people earning a higher income (increases income inequality)

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