18 Questions
Which factor is considered the most important gauge for the success of labor?
Productivity
What type of situation is defined by an inefficient distribution of goods and services in the free market?
Market failure
What does productivity measure?
Output produced per hour
What is the reward received by labor as a production factor?
Wages
In market failure, why do individual incentives for rational behavior not lead to rational outcomes for the group?
Individual decisions are not optimal for the group
Which of the following is considered a capital good according to the text?
Industrial or commercial buildings
What can market failure sometimes be shown as in traditional microeconomics?
Disequilibrium
Which of the following contributes to market failure in real-world market systems?
Externalities
In economics, what does scarcity refer to?
Infinite needs and limited resources
What are prime examples of scarce resources mentioned in the text?
Money and time
What is a common government response to market failure?
Direct provision of merit goods
Which of the following is NOT a response by governments to market failure?
Promotion of monopolies
What is an externality that diminishes property values or negatively affects people's health?
Negative externality
Which type of aid is given without any conditions regarding the purchasing of goods or services from the donor country?
Untied aid
What is the term used for goods that are under-consumed but have positive externalities associated with them?
Merit goods
Which type of market intervention is commonly needed due to environmental concerns and sustainable development considerations?
Market failure
In the context of economic development, what is one reason for market failure related to underproduction of certain goods?
Positive externality
What is the term for aid given directly from one country to another without involving any intermediary organizations?
Bilateral aid
Study Notes
Productivity and Labour
- Productivity measures the output produced per hour of work.
- The reward of the labour production factor is wages.
Capital as a Production Factor
- Capital is the third production factor and includes all capital goods used for production.
- Capital goods are intended to support production, while consumable goods are the output of the production process.
- Examples of capital goods include industrial or commercial buildings, and an airline's aircraft.
- The income that owners receive on capital goods is called interest.
Scarcity
- Scarcity refers to the gap between limited resources and unlimited needs and desires of consumers.
- Managers and entrepreneurs make choices about how to effectively allocate resources to meet basic needs and desires.
- Money and time are prime examples of scarce resources.
Market Failure
- Market failure occurs when individual incentives for rational behavior do not lead to rational outcomes for the group.
- In traditional microeconomics, market failure can be shown as a steady-state disequilibrium where the quantity supplied does not equal the quantity demanded.
- Market failure occurs due to inefficient producers, externalities, environmental concerns, and lack of public goods.
Externalities
- An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.
- Externalities can be both positive and negative and can stem from either the production or consumption of a good or service.
- Examples of negative externalities include pollution, while positive externalities include actions that reduce disease transmission or avoid harming the environment.
Reasons for Market Failure
- Environmental concerns: effects on the environment and sustainable development.
- Underproduction of merit goods: a merit good is a private good that society believes is under consumed, often with positive externalities.
- Examples of merit goods include private education, private healthcare, and sports centers.
Test your knowledge of market failure, allocation, and foreign aids in the context of comparative economic planning. Explore the concept of market failure and its implications for resource allocation and the role of foreign aids in economic planning.
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