ECON 201 Chapter 12

By jkliman9, Dec 2011

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Define Optimal Mix of Output?	The most desirable combination of output attainable with existing resources, technology, and social values.
Explain how the market reaches an optimal mix of output.	By using the market mechanism, which uses market prices and sales to reach that optimal output.
Define Market failure.	An imperfection in the market mechanism that prevents optimal outcomes.
What are the major causes of a market failure?	Public goods, Market power, externalities, equity.
Define Private good.	A good or service that when consumed by on person excludes consumption by others.
Define public good.	A good or service when consumed by one person does not exclude consumption by others.
Explain free rider dilemma.	Not matter what there will all be those who siphon of the the work of others.
Why are public goods under-produced? Why are private goods over-produced?	Both are because of the existence of free riders. Consumers do not want to share there consumption.
What is externality?	Cost of a market activity from a third party; the difference between the social and private market costs of a market activity.

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