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Flashcards in Econ Deck (21)
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1
Q

What are the two characteristics of pure public goods?

A

non-rivalrous and nonexcludable

2
Q

Why is it hard to provide a public good through markets?

A

Anyone can use the good.

3
Q

What are two ways public goods can be provided?

A

government and funding

4
Q

What is the meaning of rivalrous goods?

A

Rivalrous goods are those which can be consumed by only one person at the same time – for example, a candy bar or a suit

5
Q

What is the meaning of non-rivalrous goods?

A

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

6
Q

What is the meaning of excludable goods?

A

Excludable goods are those for which one can at low cost prevent those who have not paid for the good from consuming it

7
Q

Why do externalities lead to an outcome that is not allocatively efficient?

A

government

8
Q

What are externalities?

A

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)

9
Q

What is allocative efficiency?

A

Producing the amount of goods that socities want

10
Q

How does positive externalities affect production?

A

It leads to less production.

11
Q

How does negative externalities affect production?

A

It leads to more production.

12
Q

What does market failure mean?

A

a situation in which the allocation of goods and services is not efficient

13
Q

What are two ways externalities can be internalized?

A

1) Through social norms (being respectful).

2) Through the government (e.g., rules, tax)

14
Q

What is the Coase Theorem?

A

When transaction costs are low, particities can negotiate a mutually agreeable outcome

15
Q

What are pure private goods?

A

Rivalrous and excludable goods (e.g., potato chips)

16
Q

What are toll goods?

A

Nonrivalrous and excludable goods (e.g., cable tv)

17
Q

What are pure public goods?

A

Nonrivalrous and nonexcludable (e.g., wikipedia)

18
Q

What are common pool resources?

A

Rivalrous and nonexludable (e.g., free physical book)

19
Q

What is the free-rider problem?

A

the free rider problem occurs when those who benefit from resources, goods, or services do not pay for them, which results in an under-provision of those goods or services.

20
Q

What are two solutions to the free-rider problem?

A

1) In the market - donations, advertisement

2) Through the government - tax

21
Q

What is the information problem?

A

When the info needed to evaluate the quality or safety of the good is very specialized or difficult for the average person to understand