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16 Cards in this Set
- Front
- Back
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failure of the unregulated market system to achieve allocative efficiency
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market failure
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an effect on parties not directly involved in the production or use of a commodity; also called third party effects
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externailty
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the value of the best alternative use of resources used in production as valued by the producer
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private cost
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the value of the best alternative use of resources used in production as valued by society
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social cost
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a good or service is this if, when one person consumes one unit of it, there is one less unity available for others to consume
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rivalrous
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a good or service is this if its owner can prevent others from consuming it
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excludable
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goods or services that are both rivalrous and excludable
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private goods
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a product that is rivalrous but not excludable
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common-property resource
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goods or services that can simultaneously provide benefits to a large group of people; also called collective consumption goods
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public goods
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a situation in which one party to a transaction has more relevant information about the transaction than the other party
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asymmetric information
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a situation in which an individual or a firm takes advantage of special knowledge while engaging in socially inefficient behavior
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moral hazard
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self-selection, within a single risk category, of persons of above average risk
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adverse selection
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intervention in the free choices of individuals by others (including governments) to protect them against what is presumed to be their own ignorance or folly
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paternalism
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an approach for evaluating the desirability of a given policy, based on comparing total (opportunity) costs with total benefits
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cost-benefit analysis
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behavior whereby private firms and individuals try to use the powers of the government to enhance their own economic well-being in ways that are not in the public interest
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rent seeking
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when agents have no incentive to become informed about some government policy because the costs of becoming informed exceed the benefits of any well-informed action the agent might take
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rational ignorance
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