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12 Cards in this Set
- Front
- Back
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Market Failure
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a situation in which resources are not allocated to their highest valued use
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Private Costs
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costs that are born solely by the individuals involved in the transaction that created the costs
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Externality
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the cost or benefit of a transaction that is borne by someone not directly involved in the transaction
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social cost
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the total cost of a transaction, the private cost plus the external cost
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Coase Theorem
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The idea that if people can negotiate with one another at no cost over the right to perform activities that cause externalities, they will always arrive at an efficient solution
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principle of mutual exclusivity
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the rule that an owner of private property is entitled to enjoy the consumption of that product privately
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public good
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a good whose consumption by by one person does not diminish the quantity or quality available for others
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free rider
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a consumer or producer who enjoys the benefits of a good or service without paying for that good or service
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adverse selection
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the problem that occurs when higher-quality consumers or producers are driven out of the market because unobservvable qualities are misvalued
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moral hazard
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the problem that arises when people change their behavior from what was expected of them when they engaged in a trade or contract
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logrolling
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an inefficiency in the political process in which legislators support one another's projects in order to ensure support for their own
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rent seeking
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the use of resources simply to transfer wealth from one group to another without increasing production or total wealth
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