AP Microeconomics Chapter 4: Market Failures: Public Goods and Externalities

question

demand-side market failures

answer

happen when demand curves do not reflect consumers full willingness to pay for a good or service

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supply-side market failures

answer

occur when supply curves do not reflect the full cost of producing a good or service

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producer surplus

answer

the difference between the actual price a producer receives and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available

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productive efficiency

answer

when competition forces orange growers to use the best technologies and combinations of resources available, minimizing the per-unit cost of the output produced

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allocative efficiency

answer

every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing

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private goods

answer

goods offered for sale in stores, shops and on the internet

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efficiency losses

answer

reductions of combined consumer and producer surplus

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rivalry

answer

when one person buys and consumes a product, it is not available for another person to buy and consume. When Adams purchases and drinks a bottle of mineral water, it is not available for Benson to purchase and consume

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excludability

answer

sellers can keep people who do not pay for a product from obtaining its benefits. Only people who can afford it can use it

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public goods

answer

distinguished by non rivalry and non excludability

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non rivalry

answer

one person's consumption of a good does not preclude consumption of he good by others

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cost-benefit analysis

answer

the decision of weather to provide a particular public good and how much of it to provide.

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free-rider problem

answer

everyone can obtain the benefit

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non excludability

answer

there is no effective way of excluding individuals from the benefit of the good once it comes into existence

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externality

answer

when some of the costs or the benefits of a good or service are passed onto or "spill over to" someone other than the immediate buyer or seller.

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question

demand-side market failures

answer

happen when demand curves do not reflect consumers full willingness to pay for a good or service

question

supply-side market failures

answer

occur when supply curves do not reflect the full cost of producing a good or service

question

producer surplus

answer

the difference between the actual price a producer receives and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available

question

productive efficiency

answer

when competition forces orange growers to use the best technologies and combinations of resources available, minimizing the per-unit cost of the output produced

question

allocative efficiency

answer

every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing

question

private goods

answer

goods offered for sale in stores, shops and on the internet

question

efficiency losses

answer

reductions of combined consumer and producer surplus

question

rivalry

answer

question

excludability

answer

sellers can keep people who do not pay for a product from obtaining its benefits. Only people who can afford it can use it

question

public goods

answer

distinguished by non rivalry and non excludability

question

non rivalry

answer

one person's consumption of a good does not preclude consumption of he good by others

question

cost-benefit analysis

answer

the decision of weather to provide a particular public good and how much of it to provide.

question

free-rider problem

answer

everyone can obtain the benefit

question

non excludability

answer

there is no effective way of excluding individuals from the benefit of the good once it comes into existence

question

externality

answer

when some of the costs or the benefits of a good or service are passed onto or "spill over to" someone other than the immediate buyer or seller.

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