Micro Economics Chapter 4

The most desirable combination of output attainable with existing resources, technology, and social value

The use of market prices and sales to signal desired outputs (or resource allocations)

Situation where the market generates less than perfect -suboptimal-outcomes

forces of supply and demand havent led us to the best point on the production possibilities curve

Government

Public good
externalities
market power
equity

Good or service whose consumption by one person excludes consumption by others

Eating a doughnut is only good for you and not other people

Consumption of a public good by one person doesnt preclude consumption of the same good by another person

Individual who reaps direct benefits from someone elses purchase (consumption) of a public good

Underproduce, overproduce

Costs or benefits of a market activity borne by a third party, that is, by someone other than the immediate producer or consumer

When ever externalities are present, market prices arent a valid measure of a good's value to society

Market will underproduce goods that yield external benefits and overproduce those that generate external cost

Firm that produces the entire market supply of a particular good or service

Ability to alter the market price of a good or service

Monopoly

Government intervention to alter market structure or prevent abuse of market power

An industry in which one firm can achieve economies of scale over the entire range of market supply