Definitions Flashcards
(20 cards)
Market failure
When the price mechanism fails to distribute goods & services efficiently in the free market
Government failure
Where the government fails to correct market failure & make market conditions worse than what they initially were (unintended consequences)
Wealth inequality
Where wealth is unequally distributed as it’s concentrated within a small minority of the population
Income inequality
Refers to the unequal distribution of income within the population: A small minority of the population which account for the richest people in the country hold a proportionately large share of the total income (measured by gini coefficient)
Equity
This refers to the fair distribution of resources (goods & services), wealth, income/wages & opportunities
Efficiency
This refers to how well resources are distributed in order to effectively meet supply & demand when producing goods & services
Living standards
This considers how the quality of life is affected by income, consumption & overall material well-being (measured by GDP/capita)
Prosperity
The state of economic well being which is characterised by high levels of income, employment & overall economic activity
Trade union
An organisation of workers who collectively take action in bargaining for better working conditions for the workers they represent (e.g better wages, lowering working hours, reducing discrimination based on age, race, gender, ethnicity, safer working conditions)
Regulation
When regulatory entities such as the CMA, Ofwat, Ofcom, Ofgem & Ofsted take action in trying to prevent further market failure (by passing on rules)
Government intervention
When the state enters the free market with policies with the intent to correct market failure & achieve social efficiency & equity
Subsidy
An incentive on production given by the state to lower costs
Tax
A levy placed to collect revenue or/and to discourage production & consumption
Externalities
The effects the consumption of a good or service gives off onto society (either positive or negative)
[Or the impacts on society that are derived from the production & consumption of a good or service]
Inequality
Difference in living standards in the population that are largely caused by unequal access to education & opportunities, unequal distribution of income & wealth
Poverty
Generally surviving on low living standards:
-Absolute poverty: Failing to afford basic necessities to meet daily needs to survive (subsisting on under $2 per day)
-Relative poverty: Living under 60% of the median income (under £22,020) - therefore having significantly less than the average ;
around 21% were in relative poverty after rise in housing costs in 2023/24, leading to social exclusion & lower quality of life
MRPl (Marginal revenue product)
This measures the additional revenue a worker generates for the company, indicating their productivity (in terms of revenue contribution)
How is moral hazard caused by monopolies (and nationalisation)?
Without competition, monopolies may take bigger risks (such as neglecting customer service, not innovating on product quality) & become less efficient, knowing their consumers will have nowhere else to go / No or little alternatives
Free rider problem
Where individuals benefit from a public good / service without contributing to the cost by not paying for it
(Thus disincentivising firms to provide the good)
Quasi public good
A public good which is accessible to everyone but may be rivalrous in consumption & partially excludable
E.g Roads (with toll booths), libraries, hospitals (with vaccines) - these charge user fees
