Individuals, firms, markets and market failure Key Terms

Allocative Efficiency

A situation in which resources are distributed in a way that maximizes consumer satisfaction, typically where price equals marginal cost.

Market Power

The ability of a firm to influence the price of a good or service in the market.

Market Contestability

The degree to which a market is open to new entrants, affecting the competitive dynamics within that market.

Barriers to Entry

Factors that make it difficult for new firms to enter a market, including high startup costs, regulatory requirements, and brand loyalty.

Static Efficiency

A situation where resources are allocated in the most efficient way at a given point in time, typically where price equals marginal cost.

Dynamic Efficiency

The efficiency achieved when firms innovate and improve over time, leading to better products and lower costs.

Consumer Surplus

The difference between the maximum price consumers are willing to pay and the market price.

Producer Surplus

The difference between the market price and the minimum price at which producers are willing to sell.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Equilibrium Wage

The wage rate at which the quantity of labor supplied equals the quantity of labor demanded.

Labour Supply

The total number of hours that workers are willing and able to work at a given wage rate.

Wage Elasticity of Labour Supply

A measure of how responsive the quantity of labour supplied is to a change in wage rates.

Marginal Revenue Product of Labour

The additional revenue generated from employing one more unit of labour, which influences firms' demand for labour.

Wage Differentials

Variations in wage rates across different jobs, industries, or regions, often due to differences in skill levels, working conditions, or demand.

Monopsony

A market situation where there is only one buyer (employer) for a particular type of labour, giving the employer significant power over wage rates.

Bargaining Power

The ability of workers or unions to negotiate higher wages or better working conditions, often influenced by the supply and demand for labour.

Trade Union

An organized association of workers formed to protect and further their rights and interests.

Collective Bargaining

The negotiation process between employers and a group of employees aimed at reaching agreements to regulate working conditions.

National Minimum Wage

The lowest wage that employers are legally allowed to pay their workers.

Elasticity of Demand for Labor

A measure of how responsive the quantity of labor demanded is to a change in wage rates.

Discrimination

The unequal treatment of individuals based on characteristics such as race, gender, or age, rather than their job-related abilities.

Market Failure

A situation in which the allocation of goods and services is not efficient, often due to externalities, public goods, or discrimination.

Gini coefficient

A measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect inequality).

Lorenz curve

A graphical representation of income distribution, showing the proportion of total income earned by cumulative percentages of the population.

Poverty

The state of having insufficient resources to meet basic living standards.

Income Inequality

The unequal distribution of income within a population.

Income Inequality

The unequal distribution of income within a population, often measured by the Gini coefficient.

Poverty Line

The minimum level of income deemed adequate in a particular country, used to determine eligibility for certain government assistance programs.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Social Cost

The total cost to society of an economic transaction, including both private costs and external costs.