Econ Flashcards
What are the two characteristics of pure public goods?
non-rivalrous and nonexcludable
Why is it hard to provide a public good through markets?
Anyone can use the good.
What are two ways public goods can be provided?
government and funding
What is the meaning of rivalrous goods?
Rivalrous goods are those which can be consumed by only one person at the same time – for example, a candy bar or a suit
What is the meaning of non-rivalrous goods?
non-rivalrous goods may be consumed by many at the same time at no additional cost – for example, national defence or a piece of scientific knowledge
What is the meaning of excludable goods?
Excludable goods are those for which one can at low cost prevent those who have not paid for the good from consuming it
Why do externalities lead to an outcome that is not allocatively efficient?
government
What are externalities?
When the decision maker does not bear all cost or capture all benefits. A third unrelated party is affected. An externality can be either positive or negative. (e.g., pollution can be a negative externality)
What is allocative efficiency?
Producing the amount of goods that socities want
How does positive externalities affect production?
It leads to less production.
How does negative externalities affect production?
It leads to more production.
What does market failure mean?
a situation in which the allocation of goods and services is not efficient
What are two ways externalities can be internalized?
1) Through social norms (being respectful).
2) Through the government (e.g., rules, tax)
What is the Coase Theorem?
When transaction costs are low, particities can negotiate a mutually agreeable outcome
What are pure private goods?
Rivalrous and excludable goods (e.g., potato chips)
