| Term | Definition |
|---|---|
| asymmetric information | A situation where one party in a transaction has more or better information than the other, leading to market inefficiency. |
| cost-benefit analysis | A systematic method for evaluating the strengths and weaknesses of alternatives by comparing total expected costs against total expected benefits. |
| deadweight loss | The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus. |
| efficient allocations | Resource distributions where marginal social benefit equals marginal social cost, resulting in maximum total surplus with no deadweight loss. |
| equilibrium allocations | The quantities of goods and resources distributed in a market when quantity supplied equals quantity demanded at the market price. |
| imperfect markets | Markets where firms have some degree of market power and prices do not equal marginal cost, including monopoly, monopolistic competition, and monopsony. |
| internalized | When all social benefits and costs are reflected in the market prices and decisions of individuals participating in the market. |
| marginal benefits | The additional benefit or satisfaction gained from consuming or producing one more unit of a good. |
| marginal costs | The additional cost incurred from producing one more unit of output. |
| marginal social benefit | The total benefit to society of consuming one additional unit of a good, including both private and external benefits. |
| marginal social cost | The total cost to society of producing one additional unit of a good, including both private and external costs. |
| market equilibrium quantity | The quantity of a good where the quantity demanded equals the quantity supplied at a given price. |
| market inefficiencies | Situations where the allocation of resources does not maximize total economic surplus, resulting in deadweight loss. |
| market power | The ability of a firm to influence the price of a product by changing the quantity it supplies. |
| monopolistic competition | A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power. |
| monopoly | A market structure with one firm that produces a unique product with no close substitutes and has significant market power. |
| negative externalities | External costs imposed by the production or consumption of a good that are borne by third parties without compensation. |
| oligopoly | A market structure dominated by a few large firms whose decisions significantly affect each other and market outcomes. |
| positive externalities | External benefits generated by the production or consumption of a good that are received by third parties at no cost. |
| private incentives | Individual motivations and rewards that drive rational agents to make decisions based on personal benefit rather than broader social welfare. |
| private marginal benefits | The additional benefit received by an individual or firm from producing or consuming one more unit of a good or service. |
| private marginal costs | The additional cost incurred by an individual or firm from producing or consuming one more unit of a good or service. |
| public goods | Goods that are both non-rival and non-excludable, meaning they can be consumed by multiple people simultaneously and cannot be restricted to paying consumers. |
| rational agents | Economic decision-makers who make choices by comparing benefits and costs to maximize their satisfaction or profit. |
| social efficiency | An economic outcome where the marginal benefit of consuming the last unit equals the marginal cost of producing that unit, maximizing total economic surplus. |
| socially optimal quantity | The quantity of a good where marginal social benefit equals marginal social cost, maximizing total economic surplus. |
| total economic surplus | The sum of consumer surplus and producer surplus, representing the total benefit to society from market exchange. |
| Term | Definition |
|---|---|
| economic surplus | The sum of consumer surplus and producer surplus; total economic surplus is maximized at the socially optimal quantity. |
| environmental regulation | Government rules and standards designed to limit pollution and protect natural resources from negative externalities. |
| external benefits | Benefits of an economic activity received by third parties who did not pay for them. |
| external costs | Costs of an economic activity borne by third parties who did not choose to incur them. |
| externalities | Costs or benefits of an economic activity experienced by unrelated third parties, arising from a lack of well-defined property rights and/or high transaction costs. |
| free ride | The act of benefiting from a non-excludable good without paying for it or contributing to its provision. |
| marginal social benefit | The total benefit to society of consuming one additional unit of a good, including both private and external benefits. |
| marginal social cost | The total cost to society of producing one additional unit of a good, including both private and external costs. |
| negative externalities | External costs imposed by the production or consumption of a good that are borne by third parties without compensation. |
| non-excludable | A characteristic of a good where it is impossible or impractical to prevent individuals from consuming it once it is provided. |
| positive externalities | External benefits generated by the production or consumption of a good that are received by third parties at no cost. |
| private benefits | The direct benefits received by a producer or consumer from engaging in an economic activity. |
| private costs | The direct costs incurred by a producer or consumer in engaging in an economic activity. |
| private transactions | Voluntary exchanges between individuals that can reassign property rights to internalize externalities. |
| property rights | Legal entitlements that specify who owns a resource and what they can do with it; well-defined property rights help internalize externalities. |
| public provision | Government production and distribution of goods or services that generate positive externalities. |
| socially optimal quantity | The quantity of a good where marginal social benefit equals marginal social cost, maximizing total economic surplus. |
| subsidies | Government payments or incentives that can be used to encourage production or consumption of goods that generate positive externalities. |
| taxes | Mandatory payments to the government that can be used to discourage production or consumption of goods that generate negative externalities. |
| transaction costs | The costs of negotiating, monitoring, and enforcing agreements; high transaction costs can prevent the internalization of externalities. |
| Term | Definition |
|---|---|
| excludable | A characteristic of a good where it is possible to prevent people who have not paid from consuming it. |
| excludable goods | Goods where producers can prevent people who do not pay from consuming them. |
| free rider problem | The situation where individuals benefit from a public good without paying for it, reducing incentives for private production of public goods. |
| non-excludable | A characteristic of a good where it is impossible or impractical to prevent individuals from consuming it once it is provided. |
| non-rival | A characteristic of goods where consumption by one person does not reduce the amount available for others. |
| open access resources | Natural resources that are non-excludable and rival, leading to inefficient overconsumption because individuals do not bear the full cost of their use. |
| private goods | Goods that are both rival and excludable, meaning they can be owned individually and one person's consumption prevents another's. |
| public goods | Goods that are both non-rival and non-excludable, meaning they can be consumed by multiple people simultaneously and cannot be restricted to paying consumers. |
| rival | A characteristic of a good where consumption by one person reduces the amount available for others to consume. |
| rival goods | Goods where consumption by one person reduces the amount available for others to consume. |
| Term | Definition |
|---|---|
| allocatively efficient | An outcome where resources are distributed such that marginal benefit equals marginal cost and total surplus is maximized. |
| antitrust policy | Government policies designed to prevent monopolistic practices and promote competition in markets. |
| binding price ceilings | A government-imposed maximum price that is set below the equilibrium price, preventing prices from rising above that level. |
| binding price floors | A government-imposed minimum price that is set above the equilibrium price, preventing prices from falling below that level. |
| consumer surplus | The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price. |
| deadweight loss | The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus. |
| equilibrium quantity | The quantity of a good or service that is both supplied and demanded at the equilibrium price. |
| government policies | Actions and regulations implemented by government to influence economic activity and market outcomes. |
| government policy interventions | Actions taken by the government to regulate markets and influence economic outcomes, such as taxes, subsidies, and price controls. |
| imperfect markets | Markets where firms have some degree of market power and prices do not equal marginal cost, including monopoly, monopolistic competition, and monopsony. |
| imperfectly competitive markets | Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly. |
| lump-sum subsidies | A fixed payment by the government that does not vary with the quantity of output produced, affecting only fixed costs and not marginal benefit. |
| lump-sum taxes | A fixed tax amount that does not vary with the quantity of output produced, affecting only fixed costs and not marginal cost. |
| marginal benefits | The additional benefit or satisfaction gained from consuming or producing one more unit of a good. |
| marginal costs | The additional cost incurred from producing one more unit of output. |
| market failure | A situation where the free market fails to allocate resources efficiently, resulting in a loss of economic welfare. |
| market outcomes | The results of market activity, including equilibrium price and quantity, consumer surplus, producer surplus, and deadweight loss. |
| monopolistic competition | A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power. |
| monopoly | A market structure with one firm that produces a unique product with no close substitutes and has significant market power. |
| monopsony | A market structure with one buyer facing many sellers, giving the buyer significant power to influence price. |
| natural monopoly | A market where one firm can produce the entire market output at a lower cost than multiple firms due to economies of scale. |
| per-unit subsidies | A fixed payment by the government for each unit of a good produced or sold, reducing the price consumers pay and increasing the net price firms receive. |
| per-unit taxes | A fixed tax amount imposed on each unit of a good sold, affecting both the price consumers pay and the net price firms receive. |
| perfect competition | A market structure with many firms, homogeneous products, free entry and exit, and firms that are price takers. |
| perfectly competitive markets | Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers. |
| price elasticity of demand | A measure of the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price. |
| price elasticity of supply | A measure of the responsiveness of quantity supplied to changes in price, calculated as the percentage change in quantity supplied divided by the percentage change in price. |
| price regulation | Government policies that control the prices firms can charge for goods and services. |
| producer surplus | The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price. |
| Term | Definition |
|---|---|
| bargaining power | The ability of an individual or group to negotiate favorable terms in economic transactions or labor arrangements. |
| discrimination | Unfair treatment of individuals based on characteristics such as race, gender, or ethnicity that affects economic opportunities and outcomes. |
| economic inequality | The unequal distribution of income and wealth among individuals, groups, or countries. |
| factor of production | An economic resource used in the production of goods and services, including land, labor, capital, and entrepreneurship. |
| financial markets | Systems and institutions where financial assets such as stocks, bonds, and loans are bought and sold. |
| Gini coefficient | A numerical measure of inequality that ranges from 0 (perfect equality) to 1 (perfect inequality), calculated from the Lorenz curve. |
| human capital | The knowledge, skills, education, and experience that individuals possess and can use to generate income. |
| income | Money or other forms of payment received by individuals or households, typically from employment or other sources. |
| income inequality | The unequal distribution of income among individuals or groups in an economy. |
| inheritance | The transfer of wealth and assets from one generation to another, typically through family succession. |
| Lorenz curve | A graphical representation showing the cumulative distribution of income or wealth, used to visualize the degree of inequality in a population. |
| marginal product | The additional output produced by employing one more unit of a variable input, holding all other inputs constant. |
| mobility | The ability of individuals to move between different economic positions or social classes, either within a generation or across generations. |
| poverty rates | The percentage of a population living below a specified income threshold or poverty line. |
| progressive tax structure | A tax system where the tax rate increases as income increases, so higher earners pay a larger percentage of their income in taxes. |
| regressive tax structure | A tax system where the tax rate decreases as income increases, so lower earners pay a larger percentage of their income in taxes. |
| social capital | The networks, relationships, and social connections that individuals can leverage for economic and social benefits. |
| wealth | The total value of assets and resources owned by individuals or households, including property, savings, and investments. |
| wealth inequality | The unequal distribution of accumulated assets and net worth among individuals or groups in an economy. |