key terminiology

• What is market failure?

  The inability of the free market to allocate resources efficiently
• What does government failure refer to?

  When government intervention worsens market inefficiencies
• What is deadweight loss?

  A loss of economic welfare due to inefficiency
• What is rent-seeking?

  The act of obtaining benefits through non-productive means
• What does crowding-out refer to?

  The reduction in private sector investment due to government borrowing
• What is regulatory capture?

  When regulators favor the industry over public interest
• What are the key concepts related to market failure and government intervention?

  • Market Failure: Inefficient resource allocation
  • Government Failure: Worsening market inefficiencies
  • Deadweight Loss: Economic welfare loss
  • Rent-Seeking: Non-productive economic benefits
  • Crowding-Out: Reduced private investment
  • Regulatory Capture: Favoring industry over public interest
• Patent trolls


  A form of rent-seeking where individuals or companies acquire patents solely to sue others for alleged infringement, without creating any actual products or services.
• Government contracts


  A form of rent-seeking where companies win government contracts without providing the best value or service, solely based on political connections or influence.
• Price-fixing


  A form of rent-seeking where companies collude to set artificially high prices, intentionally stifling competition and innovation.
• Suing for damages


  A form of rent-seeking where companies sue others for alleged patent infringement or other claims, primarily to extract financial compensation rather than innovate or improve.
• Crowding-out


  The reduction in private sector investment due to government borrowing, resulting from increased demand for funds, rising interest rates, and reduced private sector investment.
• Monetary Policy and Crowding-out


  The role of central banks in mitigating the negative effects of government borrowing on private sector investment through monetary policy actions, such as setting interest rates or implementing quantitative easing.
• Government Borrowing and Private Sector Investment


  The relationship between increased government borrowing and reduced private sector investment, potentially resulting in a decline in overall economic activity.
• Reallocation Effect


  The change in the allocation of funds from private sector investments to government securities, driven by the attractive yields and low risks of government bonds.
• Substitution Effect


  The shift in private investors' preferences away from borrowing and towards other assets, such as bonds or shares, due to rising interest rates.
• Interest Rate Effect


  The increase in interest rates due to government borrowing, making it more expensive for private individuals and companies to borrow.