Untitled Flashcards Set

allocation function

Government production of goods or regulation of business aimed at improving the allocative efficiency of the economy.

distribution function

Government policies aimed at changing the final distribution of goods/services across consumers to achieve a fairer apportionment.

stabilization function

Attempts by government to minimize fluctuations in overall macroeconomic activity.

market failure

A situation where the free market outcome is inefficient, resulting in positive Deadweight-Loss.

monopoly

A market structure with a single seller of a unique good with no close substitutes.

profit

The difference between revenues and costs of production.

marginal revenue

The amount by which revenue changes as the firm's quantity of output is increased by a unit.

marginal costs of production

The amount by which production costs change as the firm's quantity of output is increased by a unit.

non-rival good

A good for which consumption by one person does not diminish the quantity or quality of consumption by others.

rival good

A good for which consumption by one person does diminish the quantity or quality of consumption by others.

free rider problem

If a public good is supplied in a free market, the amount traded would be less than the efficient quantity due to individuals enjoying benefits without purchasing.

negative externality

A cost of an activity that is borne by someone not engaging in the activity, e.g., pollution.

positive externality

A benefit from an activity realized by someone not engaging in the activity, e.g., vaccines.

Coasian solution

An approach to externalities that involves clearly defining property rights and allowing negotiation between parties.

internalizing an externality

Policies that impose costs on those who generate negative externalities.

club good

A good that is excludable and non-rival in consumption, e.g., satellite radio.

public good

A good that is non-excludable and non-rival in consumption, e.g., national defense.

common good

A good that is non-excludable and rival in consumption, e.g., fish stocks in the ocean.

excludable good

A good for which it is easy to prevent consumption by those who do not pay.

non-excludable good

A good for which it is difficult to prevent consumption by those who do not pay.

market power

A firm's control over the price of their output, allowing them to increase price without losing all customers.

information asymmetry

A situation where consumers lack accurate information affecting their market choices.