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.