IB Economics Section 2.9, 2.10, & 2.12 Vocabulary

rivalry

A characteristic of a good according to which its consumption by one person reduces its availability for someone else.

excludability

A characteristic of goods according to which it is possible to exclude people from using the good by charging a price for it.

public goods

Goods that are neither excludable nor rival in consumption and thus must be provided by the government.

private goods

goods that are both excludable and rival in consumption

free rider

a person who receives the benefit of a good but avoids paying for it

asymmetric information

a situation in which one party to an economic transaction has less information than the other party

symmetric information

Where buyers and sellers both have access to the same information

adverse selection

the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction

moral hazard

the actions people take after they have entered into a transaction that make the other party to the transaction worse off

signaling

Is a method used by the seller when the seller has more information, which attempts to convince the buyer that the product is of good quality. Ex. Brand Name

screening

A method used by the buyer when the buyer has limited information; for example the buyer may research the seller or product.

income inequality

Is how unevenly income is distributed throughout a population. The less equal the distribution, the higher income inequality is.

wealth inequality

the unequal distribution of assets within a population

equity

Is the condition of being fair or just.

equality

The state of being equal with respect to something; income equality means everyone receives the same income.

Lorenz curve

Graph showing how much the actual distribution of income differs from an equal distribution

Gini coefficient

A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.

cost-benefit analysis

a study that compares the costs and benefits to society of providing a public good

contracting out

When the government hirers a private organization to deliver a public program or service.