Econ Chapter

Front 1

Adverse Selection Problem-

Back 1

a problem arising when information known to one party to a contract or agreement is not known to the other party, causing the other to incur major costs.

Front 2

Asymmetric Information-

Back 2

a situation in which one part to a market transactions has much more information about a product or service than the other.

Front 3

Coase Theorem-

Back 3

the idea, first stated by economist Ronald Coase, that spillover problems may be resolved through private negotiations of the affected parties.

Front 4

Cost-Benefit Analysis-

Back 4

a comparison of the marginal costs of a government project or program with the marginal benefits to decide whether or not to employ resources in that project or program and to what extent.

Front 5

Externalities

Back 5

- a benefit or cost from production or consumption, accruing without compensation to non-buyers and non-sellers of the product.

Front 6

Marginal-Cost-Marginal-Benefit Rule-

Back 6

a method of determining the total output where economic profit is a maximum by comparing the marginal cost and marginal revenue of each additional unit of output.

Front 7

Market for Externality Rights

Back 7

-a market in which firms can buy rights to discharge pollutants. The price of such rights is determined by the demand for the right to discharge the pollutants and a perfectly inelastic supply of such rights.

Front 8

Moral Hazard Problem

Back 8

- the possibility that individuals or institutions will change their behavior as a result of a contract or agreement.

Front 9

Optimal Reduction of an Externality-

Back 9

occurs when society’s marginal cost and marginal benefit of reducing an externality are equal.

Front 10

Tragedy of the Commons-

Back 10

the pollution of a public area or object (such as parks and rivers) because these resources are held “in common” by society. As a result, no private individual or institution has a monetary incentive to maintain the purity or quality of such resources.