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Terms in this set (59)
The inability of a market to bring about the allocation of resources that best satisfies the wants of society; in particular, the overallocation or underallocation of resources to the production of a particular good or service because of externalities or informational problems or because markets do not provide desired public goods
happen when demand curves do not reflect consumers' full willingness to pay for a good or service
demand-side market failures
occur when supply curves do not reflect the full cost of producing a good or service
supply-side market failures
is the difference between the actual price a producer receives and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available
reductions of combined consumer and producer surplus- result from both underproduction and overproduction.
When output falls below equilibrium, the sum of consumer and producer surplus falls
efficiency losses (deadweight losses)
Consumers willing to pay the market price obtain the goods; nonpayers go without.
(in consumption) means that when one person buys and consumes a product, it is not available for another person to buy and consume
means that sellers can keep people who do not pay for a product from obtaining its benefits. Only people who are willing and able to pay the market price for the good can obtain the good
(in consumption) means that one person's consumption of a god dos not preclude consumption of the good by others (national defense, street lighting, national public radio)
means there is no effective way of excluding individuals from the benefit of the good once it comes into existence.
people benefit from the public good without contributing to the cost
is a practical means for deciding whether to provide a particular public good and how much of it to provide. Involves a comparison of marginal costs and marginal benefits
Goods the government produces in such a way that exclusion would be possible.
occurs when some of the costs or the benefits of a good or service are passed onto or "spill over to" someone other than the immediate buyer or seller
Without transaction costs, private parties can solve the problem of externalities on their own is _______ theorm. Named after ________.
coase theorem; Ronald Coase
occurs when society's marginal cost and marginal benefit are equal
optimal reduction of an externality
market failures fall into two categories
Demand-side market failures and supply-side market failures
what is the formula for CS
maximum price - price paid
what represent points on a demand curve
The maximum prices that individuals are willing to pay
lower prices imply larger ______
consumer surplus and price have ______ relationship
formula for producer surplus
price received- minimum selling price
There is a _______ relationship between equilibrium price and the amount of
All markets that have downsloping demand curves and upsloping supply curves yield _______________
consumer and producer surplus
Supply curves are marginal ______ curves; demand curves are marginal _______ curves
Optimal allocation is achieved at the output level where _______
MB = MC
Only at equilibrium quantity- where the maximum willingness to pay exactly equals the minimum acceptable price- does society ______
exhaust all opportunities to produce units for which benefits exceed costs
________ goods tend to be under-provided, while common resources tend to be over-consumed
what are two ways for public goods to be provided
Private philanthropy and
marginal-benefit-marginal-cost analysis is also known as
Because the economy's resources are limited, any decision to use more resources in the public sector will means...
fewer resources for the private sector
Should resources be shifted from the private to the public sector?
Yes, if the benefit from the extra public goods exceeds the cost that results from having fewer private goods
Education, streets and highways, police and fire protection, libraries and museums, preventive medicine, and sewage disposal. are examples of?
Quasi-Public goods -Goods the government produces in such a way that exclusion would be possible.
Benefits or costs that accrue to some third party that is external to the market transaction.
of the related product occurs; an over allocation of resources to the product.
and under allocation of resources result.
________ externalities cause supply-side market failures; producers do not take into account the costs that their _______externalities impose on others
Equilibrium output is ______than optimal output; resources are over allocated to the production of this good
MC > MB and there is a net _____ to society
-external costs - market _______
-external benefits - market______
over allocates; under allocates
how can the govt correct (-) externalities?
Positive externalities cause _________side market failures.
Government could correct the under allocation of resources
subsidies to buyers
tax in reverse; payments from the government that decrease producers' costs. Shifts the supply curve rightward to the optimal level
subsidy to producers
Where positive externalities are extremely large, the government may decide to provide the product for free to everyone.
Example: free polio vaccines to all children
_________ externalities lead markets to produce a larger quantity than is socially desirable
To remedy the problem of (+) and (-) externalities, the government can internalize the externality by taxing goods that ...
have negative externalities and subsidizing goods that have positive externalities
difference between private cost and social cost?
-Private cost The cost borne by the producer of a good or service.
-Social cost The total cost of producing a good, including both the private cost and any external cost
difference between private benefit and social benefit?
-Private benefit is The benefit received by the consumer of a good or service.
-Social benefit is The total benefit from consuming a good or service, including both the private benefit and any external benefit.
Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium _______ the consumer surplus.
When does negative externalities exist at a market
equilibrium output will be greater than the efficient output
Spillover costs and spillover benefits are also called negative and positive externalities because, the unintended spillover _______ have a negative impact on third parties and the unintended spillover _______ have a positive impact on third parties
cost and benefit
If a person drives with less care after purchasing auto insurance, this situation would be an example of a
moral hazard problem
Consumer surplus arises in a market because The market price is below
below what some consumers are willing to pay for the product
When there is overproduction of a good The marginal _____ of the good exceeds its marginal ______
When the marginal benefit of an output exceeds the marginal cost Production of that output should be _______, in order to achieve efficiency
The moral hazard problem arises primarily because of:
THIS SET IS OFTEN IN FOLDERS WITH...
Chapter 8 Economic Growth A
Econ 2020 Chapter 7
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