Chapter 4 : Economic Efficiency and Markets

These flashcards cover key concepts related to economic efficiency and market dynamics, focusing on definitions of terms relevant to social efficiency, externalities, public goods, and market failures.

Social Efficiency

Achieved when the total social benefits from production equal the total social costs.

Marginal Cost (MC)

The cost of producing one more unit of a good or service.

Marginal Willingness To Pay (MWTP)

The maximum amount of money a consumer is willing to pay for one additional unit of a good.

Market Failure

Occurs when a competitive market fails to allocate resources efficiently, leading to a loss of social welfare.

Negative Externalities

Costs incurred by third parties due to the production or consumption of a good, which the market fails to reflect in its prices.

Positive Externalities

Benefits enjoyed by third parties as a result of the production or consumption of a good, not captured by the producer.

Public Good

A good that is non-rival and non-excludable, meaning one person's use does not diminish another's use, and people cannot be prevented from using it.

Free Riders

Individuals who benefit from a good or service without paying for it, typically associated with public goods.

Equilibrium Outcome

The state in a market where quantity supplied equals quantity demanded, resulting in stable prices.

Net Social Value

The total benefits to society minus the total costs, also referred to as social surplus.

Dissolved Oxygen

A measure of water quality that indicates how much oxygen is available in water, crucial for aquatic life.

Emissions Trading

A market-based approach to controlling pollution by providing economic incentives for reducing emissions.

Marginal Social Cost (MSC)

The total cost to society of producing an additional unit of a good, including both private and external costs.

Marginal Private Costs (MPC)

The direct costs incurred by producers in the production of a good, excluding any external costs.