Microeconomics Ch. 21

Front 1

distribution policies

Back 1

government economic policies that respond to market failures relating to the goals of achieving fair and evenhanded market exchanges and an acceptable distribution of income

Front 2

allocational policies

Back 2

government economic policies that respond to market failures relating to the goal of achieving an efficient use of society's scarce resources

Front 3

stabilization policies

Back 3

government economic policies that respond to market failures relating to the macroeconomic policy goals of achieving long-run economic growth, full employment, price stability, and satisfactory economic relations with foreign countries

Front 4

vertical equity

Back 4

principle of end-results equity that asks how unequals should be treated; specifically, how much redistribution should society undertake among people with different amounts of income or wealth

Front 5

principal-agent problem

Back 5

informational problem in which one individual (the principal) tries to monitor and control the behavior of another individual (the agent), but does not have enough information to do so, and the two individuals have different goals

Front 6

moral hazard

Back 6

arises when individuals who are being insured can influence the probability of the event being insured against, unbeknownst to the insurer

Front 7

adverse selection

Back 7

arises when insurance company is forced to set one premium because it cannot distinguish between high-risk and low-risk individuals, with the result that low-risk individuals cancel their policies

Front 8

merit good

Back 8

a good that society considers a virtual necessity, but that is priced beyond the means of those with low incomes

Front 9

externality

Back 9

third-party effect of a transaction that directly affects either consumers' satisfaction or firms' production possibilities

Front 10

common-use resource

Back 10

a resource such as water or air that no one owns

Front 11

marginal cost of pollution

Back 11

additional cost of pollution experienced by all third parties combined when a polluting activity is increased by one unit

Front 12

nonexclusive (public) good

Back 12

good such as national defense that is consumed by everyone once any one person or the government buys it; no one can be excluded or exclude themselves from consuming the good

Front 13

exclusive good

Back 13

good whose benefits are received only by the person who consumes it

Front 14

free-rider

Back 14

person who consumes a nonexclusive good without paying for any of the costs of the good