Economics: Market Failure, Externalities, Market Power, and Macroeconomic Principles

Market failure

A situation in which the market does not produce an efficient allocation of resources on its own.

Externality

The impact of one person's actions on the well-being of a bystander.

Pollution

A classic example of an externality.

Market power

The ability of a single person or firm (or a small group of them) to unduly influence market prices.

Productivity

The quantity of goods and services produced from each unit of labor input.

Inflation

An increase in the overall level of prices in the economy.

Business cycle

The irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed.

Short-run trade-off

The relationship between inflation and unemployment in the short run.

Government intervention

Actions taken by the government to influence the economy, such as protecting property rights or correcting market failures.

Invisible hand

The ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

Living standards

The level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area.

Economic activity

The production, distribution, and consumption of goods and services.

Demand

The desire for a product or service coupled with the ability to pay for it.

Supply

The total amount of a specific good or service that is available to consumers.

Fiscal policy

The use of government spending and taxation to influence the economy.

Monetary policy

The process by which the monetary authority of a country controls the money supply to achieve specific goals.

Economic incentives

Factors that motivate individuals to perform an action.

Trade-offs

The alternatives that must be given up when one choice is made rather than another.

Rational decision-making

The process of making choices that result in the optimal level of benefit or utility.

Specialization

The process of focusing on a particular activity or area of study to gain greater efficiency.

Public policies

Government actions intended to address issues affecting the public.

Welfare system

A government program that provides financial aid to individuals or families in need.

Health problems from pollution

Negative effects on health caused by pollutants released into the environment.

Higher prices due to market power

Increased prices that occur when a firm has significant control over the market.