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30 Cards in this Set
- Front
- Back
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Signalling function of prices |
Prices provide information to buyers and sellers |
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Incentive function of prices |
Prices create incentives for people to alter their economic behavior; for example, a higher price creates an incentive for firms to supply more of a good or service
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Rationing function of prices |
Rising prices ration demand for a product |
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Allocative function of prices |
Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand
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Missing market |
A situation in which there is no market because the functions of prices have broken down
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Private good |
A good, such as an orange, that is excludable and rival
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Public good |
A good, such as a radio programme, that is non-excludable and non-rival
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Quasi-public good |
A good which is not fully non-rival and/or where it is possible to exclude people from consuming the product
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Externality |
A public good, in the case of an external benefit, or a public bad, in the case of an external cost, that is 'dumped' on third parties outside the market.
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Positive externality |
Same as an external benefit, occurs when the consumption or production of a good causes a benefit to a third party, where the social benefit is greater than the private benefit.
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Negative externality |
Same as an external cost, occurs when the consumption or production of a good causes a cost to a third party, where the social cost is greater than the private cost.
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Production externality |
An externality (which may be positive or negative) generated in the course of producing a good or service. |
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Consumption externality |
An externality (which may be positive or negative) generated in the course of producing a good or service. |
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Social benefit |
Total benefit of an activity= private benefit + external benefit |
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Merit good |
A good, such as healthcare, for which the social benefits of consumption exceed the private benefits. Value judgements are involved
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Subsidy |
A payment made by government or other authority, usually to producers, for each unit of the subsidised good that they produce
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Demerit good |
A good, such as tobacco, for which the social costs of consumption exceed the private costs.
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Social cost |
The total cost of an activity= private cost + external cost
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Information problem |
Occurs when people make wrong decisions because they don't possess or they ignore relevant information.
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Immobility of labour |
The inability of labour to move from one job to another, either for occupational reasons or for geographical reasons.
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Geographical immobility of labour |
Occurs when workers find it difficult or impossible to move to jobs in other parts of the country or in other countries for reasons such as higher housing costs in locations where the jobs exist.
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Occupational immobility of labour |
Occurs when workers find it difficult or impossible to move between jobs because they lack or cannot develop the skills required for the new jobs.
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Equity |
Fairness or justness
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Inequity |
Unfairness or unjustness
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Distribution of income and wealth |
The way in which income and wealth are divided among the population |
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Regulation |
Involves the impositions of rules, controls and constraints, which restrict freedom of economic action in the market place
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Tax |
A compulsory levy imposed by the government to pay for its activities. Taxes can also be used to achieve other objectives, such as reduced consumption of demerit goods.
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Price ceiling |
A price above which it is illegal to trade. Price ceilings, or maximum legal prices, can distort markets by creating excess demand.
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Price floor |
A price below which it is illegal to trade. Price ceilings, or minimum legal prices, can distort markets by creating excess supply. |
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Government failure |
Occurs when government intervention reduces economic welfare, leading to an allocation of resources which is worse than the free market outcome. |
