Lesson Flashcards: Market Failure and the Role of the Government

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Definition

Inflation

A continual increase in the prices of goods and services over a long period of time

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Definition

A free market

An economic system without a government’s involvement in which the main participants are households and firms

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Definition

Privatization

The change of ownership or management of a production process from the government to individuals

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Definition

Unemployment

The societal problem where individuals seeking to provide their labor factor of production cannot find opportunities

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Definition

Underconsumption

A type of market failure in which relying only on firms for production leads to a level of consumption of goods that is insufficient to reach an optimal level for society, such as in the provision of education

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Definition

Private sector

The individual-owned production enterprises (firms) in an economy

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Definition

Demand

The amount of goods and services consumers are willing to purchase at a given price

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Definition

Market failure

An inefficiency of a free market leading that, without government intervention, would lead to the wasted use of resources (for example, inadequate production of public goods such as public streets or national defense would require individuals to try to provide their own)

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Definition

Private goods

Goods and services that are excludable (other people can be prevented from consuming them) and rivalrous (sharing them reduces their benefits to others), such as a car

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Definition

Market mechanism

The process through which supply (producers) and demand (consumers) interact to determine the market price of a good or service

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