Microeconomics Topic 1 YR2 Flashcards
(16 cards)
What is the basic economic problem?
The basic economic problem is scarcity, which arises because resources are limited, but humans wants are infinite. This forces societies to make choices about how resources are allocated.
What is opportunity cost?
Opportunity cost is the cost of the next best alternative forgone when making a decision. For example, choosing between studying and socializing.
What are the three types of economic systems?
- Market economy: Resource allocation is determined by supply and demand through the price mechanism.
- Planned economy: The government controls resource allocation.
- Mixed economy: Combines elements of both market and planned economies.
What are externalities?
Externalities are third-party effects not reflected in market prices, which can be positive (underproduced) or negative (overproduced).
What is the free rider problem?
The free rider problem occurs with public goods, where people can benefit from the good without paying for it, leading to under-provision of the good.
What are merit goods?
Merit goods are those that are under-consumed in a free market due to imperfect information or other factors. They provide greater social benefit than private benefit. Examples : education, healthcare.
What are demerit goods?
Demerit goods are those that are over-consumed in a free market, often due to imperfect information. They provide greater social cost than private cost. Examples: cigarettes, alcohol.
What is factor immobility?
Factor immobility occurs when resources, especially labour, cannot easily move to where they are most needed. This can lead to inefficiency, such as regional unemployment or mismatched skills.
What is income inequality?
Income inequality refers to the unequal distribution of income within a society. It can lead to social and economic problems, such as lower overall welfare and reduced economic growth.
What is wealth inequality?
Wealth inequality refers to the unequal distribution of assets (e.g., property, stocks) within a society. It can limit access to opportunities for many people, leading to social tension.
What is regulation in the context of market failure?
Regulation involves laws and rules set by the government to control market activities, such as pollution limits, health and safety standards, and minimum wage laws.
What are public goods?
Public goods are non-excludable and non-rivalrous, meaning they are available to all and one persons’ use does not reduce availability for others.
What are market-based policies?
Market-based policies use market forces to incentivize behavior. Examples include tradeable pollution permits and carbon trading systems.
What is regulatory capture?
Regulatory capture occurs when industries or firms influence government policies to serve their own interests, rather than the public interest.
What are unintended consequences of government intervention?
Unintended consequences are outcomes that were not anticipated when policies where implemented, which can sometimes make the problem worse, such as higher prices due to price controls.
What is the evaluation of government intervention?
The evaluation of government intervention considers whether benefits of policies (e.g., taxes, subsidies, regulations) outweigh the costs, and how effectively they address market failure.
