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Related Flashcards
Related Topics
Cards In This Set
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Economic Efficiency
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A situation that occurs when:1. all activities generating more benefits than cost are undertaken2.No activities are undertaken for which the cost exceeds the benefit
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Is it worth doing something to perfection?
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Economics suggests that it’s not a sensible guideline because at some point, the gains from doing something even better will not be worth the cost. It makes more sense to stop short of perfection, where you will maximize on your benefits relative to your costs.
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Economic Role of Government
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Two functions:1. Protecting Individuals and their property against invasion by others.2. Providing goods that cannot easily be provided through private markets.
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Protective Function of Government
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Involves the maintenance of a framework of security of security and order- an infrastructure of rules within which people can interact peacefully with one another.
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Productive Function of Government
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Most important productive functions of government is: 1. providing a stable monetary and financial environment. If markets are going to work well, individuals have to know the value of what they are buying or selling.
Tax, spending, and monetary policies exert a powerful influence on the stability of the overall economy. |
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Potential Shortcoming of the Market
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1. lack of competition2. Externalities3. Public Goods4.Poorly informed buyers or sellers.
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Lack of Competition
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The exsistence of competing buyers and sellings reduces the power of both to rig or alter the market in their own favor.
Sellers prefer fewer competing sellers so they can sell at higher prices. |
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Externalities
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Spillover effects of an activity that influence the well-being of nonconsenting third parties.
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External Costs
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Spillover effects that reduce the well-being of nonconsenting third parties
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External Benefits
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Spillover effects that generate benefits for nonconsenting third parties.
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Public Goods
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Two distinguishing characteristics:1. Nonrival in consumption2. Nonexcludable
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Nonrivalry in Consumption
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Means that making the good available to one consumer does not reduce its availability to others.
Ex: Radio Broadcast system |
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Nonexcludability
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Means that it is impossible (or atleast very costly) to exclude nonpaying customers from receiving the good.
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Free Rider
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People who receive the benefits of a good without helping to pay for its cost.
When large number of free riders & revenues are low, not very much of the good is supplied. |
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Potential Information Problems
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The consumer's information problem is minimal if the item is purchased regularly.
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