Market mechanism, Market Failure & Government Intervention

• Income Inequality: Differences in size of earnings between households/individuals.
• Market economy: Where output and prices are determined by the workings of supply and demand.
• Asymmetric information: When one party knows more or has better information than the other party in a transaction e.g a patient and doctor.
• Incentive: Something that motivates an agent in the economy.
• Market failure: Where a market leads to a misallocation of resources.
• Monopoly: Market with only one supplier/ one dominant supplier.
• Misallocation of resources: Resources are not distributed optimally.
• Economic welfare: Quality of life of the population.
• Monopoly power: The ability of a firm to be a price maker rather than a price taker; the ability to set prices.
• Complete market failure: Occurs where the market is missing
• Imperfect information: When an economic agent does not hold all the necessary information to make an informed decision about a product.
• Free-rider problem: Once a public good is produced, there is no way to control who benefits from it.
• Negative externality: Where external costs are passed onto third parties through consumption/production of a good
• Non-rival: Where one person’s consumption of a good or service does not decrease the amount available for consumption by another consumer.
• Public goods: Goods that benefit and can be used by all members of society.
• Quasi-public goods: Goods that have characteristics of both public and private goods.
• Rationing: Limiting the amount or quantity of a good available.
• Regulations: Laws or rules made by the government and other authorities
• Signalling: Where a change in the price of goods or services that show that supply or demand should be adjusted.
• Non-excludable: A good or service where you are unable to prevent non-paying consumers from benefiting or using the good.
• Social benefits: The sum of private benefits and external benefits.
• State provision: Where the government provides a good or service.
• Social cost: The sum of private costs and external costs.
• Subsidies: Where the government gives money directly to firms so that firms can continue production.
• Unintended consequences: Actions of people or governments that have consequences which were not anticipated.
• Price controls: Government controls on prices e.g maximum or minimum prices.
• Positive externality: Where a good has positive third-party effects when consumed or produced.
• Price mechanism: The way in which prices are determined through forces of supply and demand.
• Private cost: Costs incurred to the individual through consumption or production.
• Private benefit: Benefits incurred to the individual through consumption or production.