Booklet 3 - Micro Flashcards
(59 cards)
Definition - excludable
a good is excludable if someone else can be prevented from benefitting from it
- a train ticket
Definition - rivalrous
a good is rivalrous if its consumption by one person affects someone else’s ability to benefit from it
- a lawnmower cant be used at the same time in different places
Definition - non-rejectable
a consumer cannot refuse the benefit of the good
Definition - private good
a good that is both excludable and rivalrous
- box of chocolates
Definition - public good
a good which is non-excludable, non-rivalrous and non-rejectable
- lighthouse
Definition - free-rider problem
if no one can be prevented from gaining the benefit without paying, nobody has an incentive to pay
- buskers
Definition - quasi-public good / non-pure public good
a good the shows some of the characteristics of public goods
Definition - signalling function
to give information to traders to enable them to plan their economic activity
Definition - incentive function
based on the signals, economic agents alter their behaviour
Definition - rationing or allocative function
to decide how resources are used
Definition - dynamic pricing
where prices change as demand changes
Definition - missing markets
when the incentive function of prices completely breaks down and market fails to come into existence or disappears completely
Definition - partial market failure
when a market does provide a good but in an allocatively inefficient quantity
Definition - tragedy of the commons
the effect of individuals acting in a way where their own self interest is contrary to what is best for society as a whole
Definition - merit goods
goods that are more beneficial for consumers then they realise
- fruit, exercise
Definition - demerit goods
goods that are more harmful for consumers then they realise
- alcohol
Definition - experience goods
a good you need to experience to know more about
Definition - search goods
a good that you will know the right product when you find it
Definition - asymmetrical information
one person knows more than the other
Definition - externality
a cost or benefit to a third party who is not directly involved in an economic activity or transaction
Definition - negative externality
a cost to a third party
Definition - positive externality
a benefit to a third party
Definition - marginal
relating to an increase of one unit
Definition - marginal private cost (MPC)
the cost to those directly involved (producer) of one additional unit
