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12 Cards in this Set

  • Front
  • Back
Market Failure
a situation in which resources are not allocated to their highest valued use
Private Costs
costs that are born solely by the individuals involved in the transaction that created the costs
the cost or benefit of a transaction that is borne by someone not directly involved in the transaction
social cost
the total cost of a transaction, the private cost plus the external cost
Coase Theorem
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
principle of mutual exclusivity
the rule that an owner of private property is entitled to enjoy the consumption of that product privately
public good
a good whose consumption by by one person does not diminish the quantity or quality available for others
free rider
a consumer or producer who enjoys the benefits of a good or service without paying for that good or service
adverse selection
the problem that occurs when higher-quality consumers or producers are driven out of the market because unobservvable qualities are misvalued
moral hazard
the problem that arises when people change their behavior from what was expected of them when they engaged in a trade or contract
an inefficiency in the political process in which legislators support one another's projects in order to ensure support for their own
rent seeking
the use of resources simply to transfer wealth from one group to another without increasing production or total wealth