Economic Theories Flashcards
(12 cards)
What is moral hazard?
When a party takes risks because they do not bear the full consequences.
What is adverse selection?
When one party uses asymmetric information to their advantage.
What does behavioral economics study?
The effects of psychological, cognitive, emotional factors on decision-making.
What is the Coase Theorem?
If property rights are well-defined and transaction costs are low, parties can negotiate to solve externalities.
What is an environmental market failure?
A situation where markets fail to allocate resources efficiently due to environmental impacts.
What is a quasi public good?
A good that has some but not all characteristics of a public good (e.g., non-rivalrous but excludable).
What is efficiency wage theory?
The idea that higher wages can lead to increased productivity.
How do trade unions relate to efficiency wages?
They can negotiate higher wages which may lead to productivity gains.
How do minimum wages relate to efficiency wage theory?
They can raise productivity by improving worker morale and reducing turnover.
What is the lump of labour fallacy?
The incorrect belief that there is a fixed amount of work to be done.
How does an increasing labor force affect the lump of labour fallacy?
It disproves the fallacy by showing labor demand can grow.
How does technological advancement impact the lump of labour fallacy?
It creates new jobs, countering the belief of fixed job quantity.
