Microeconomics: private and public choice, ch 5

Marginal benefit

A maximum price a consumer will be willing to pay for an additional unit of product.

Free riders

A person who receives the benefit of a good without paying for it.

Franchise

A right or license granted to an individual to marketing companies goods or services or use their brand-name.

Market failure

A situation in which the structure of incentives is such that markets will encourage individuals to undertake activities that are inconsistent with economic efficiency.

Government failure

A situation in which the structure of incentives is such that the political process, including democratic political decision-making, will encourage individuals to undertake actions that conflict with economic efficiency.

Economic efficiency

A situation that occurs when all activities generating more benefit than cost are undertaken and no activities are undertaken for which the cost exceeds the benefit.

External benefits are reflected on which market curve?

Demand "\"

Public goods

Goods for which rivalry among consumers is absent and exclusion of nonpaying customers is difficult.

Nonexcludability

It is impossible or at least very costly to exclude nonpaying customers from receiving the good.

Potential shortcomings of the market

Lack of competition, externalities, public goods, and poorly informed buyers or sellers.

Nonrivalry

Making the good available to one consumer does not reduce its availability to others.

Antitrust laws

Promotes a competitive market system and discourages business practices that may allow any one firm to become a monopoly or gain significant market share.

The role of government

Protecting individuals and their property against invasions by others and providing goods that cannot easily be provided through private markets.

Externalities

Spillover effects of an activity that influence the well-being of nonconsenting third parties.

External benefit

Spillover effects that generate benefits for nonconsenting third parties.

External cost

Spillover effects that reduce the well-being of nonconsenting third parties.

External costs are reflected on which market curve?

Supply "/"

Competitive market economy

Tends to produce too little of the good that generates external benefits and too much of the good that generates external costs.

Marginal cost

The change in total cost required to produce an additional unit of output.

Opportunity cost

The highest valued alternative that must be sacrificed as result of choosing an option.

Entrepreneurs

They have an incentive to find solutions to each market problem and new solutions are constantly being discovered.

Repeat purchase items

When purchasing items like these the consumer can use past experience to acquire accurate information to make wise decisions.