Efficiency and Equity
Externality
A cost or a benefit that affects neither the buyer nor seller, but instead affects people not involved in the market transaction
deadweight loss
The decrease in total surplus that results from an inefficient level of production
Personal Characteristics
When resources are allocated on the basis of personal characteristics, people with the "right" characteristics get the resources.
Monopoly
a firm that is the sole seller of a product without close substitutes
price regulation
a price cap or a price floor, blocks the price adjustments that balance the quantity demanded and the quantity supplied and lead to underproduction
lottery
allocate resources to those who pick the winning number, draw the lucky cards, or come up lucky on some other gaming system
command system
allocates resources by the order of someone in authority
majority rule
allocates resources in the way that a majority of voters choose
contest
allocates resources to a winner or group of winners
first come, first served
allocates resources to those who are first in line
Force
allocates scarce resources
market failure
an inneficient market
Taxes
increase the prices paid by buyers, lower the prices received by sellers, and lead to underproduction.
quantity regulation
limits the amount that a farm is permitted to produce and leads to underproduction
Subsidies
payments by the government to producers, decrease the prices paid by buyers, increase the prices recieved by sellers, and lead to overproduction.
transaction costs
the costs of the services that enable a market to bring buyers and sellers together
consumer surplus
the excess of the benefit received from a good over the amount paid for it
total surplus
the sum of consumer surplus and producer surplus
market price
when a market price allocates a scare resource, the people who are willing and able to pay that price get the resource.