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Cards In This Set
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Optimal mix of output
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The most desirable combination of output attainable with existing resources, technology, and social value
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Market mechanism
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The use of market prices and sales to signal desired outputs (or resource allocations)
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MArket failure
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Situation where the market generates less than perfect -suboptimal-outcomes
forces of supply and demand havent led us to the best point on the production possibilities curve |
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Market failure establishes a basis for what time of intervention
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Government
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What are the 4 specific sources of market failure
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Public good
externalities market power equity |
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Private good
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Good or service whose consumption by one person excludes consumption by others
Eating a doughnut is only good for you and not other people |
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Public good
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Consumption of a public good by one person doesnt preclude consumption of the same good by another person
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Free ride
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Individual who reaps direct benefits from someone elses purchase (consumption) of a public good
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Market tends to underproduce/overproduce public goods and underproduce/overproduce private goods
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Underproduce, overproduce
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Externalities
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Costs or benefits of a market activity borne by a third party, that is, by someone other than the immediate producer or consumer
When ever externalities are present, market prices arent a valid measure of a good's value to society Market will underproduce goods that yield external benefits and overproduce those that generate external cost |
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Monopoly
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Firm that produces the entire market supply of a particular good or service
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MArket power
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Ability to alter the market price of a good or service
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What is the most sever form of market power?
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Monopoly
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Antitrust
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Government intervention to alter market structure or prevent abuse of market power
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Natural monopoly
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An industry in which one firm can achieve economies of scale over the entire range of market supply
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