Unit 5 and 6 Combined: Factor Markets
and Market Failure
a negative externality leads to - correct answer-overconsumption or overproduction
a positive externality leads to - correct answer-underconsumption or underproduction
Causes of Income Disparity - correct answer-differences in tax structures (progressive and
regressive tax structures), human capital, social capital, inheritance, effects of discrimination,
access to financial markets, mobility, and bargaining power within economic and social units
(firms, labor unions, and families).
common resources - correct answer-goods that are rival in consumption but not excludable
Cost Minimizing Input Combination/Least Cost Hiring Rule - correct answer-Add a given
level of input where the marginal product per dollar spent is equal for all inputs
(Mp of labor/price of labor = mp of capital/price of capital)
Derived Demand - correct answer-Demand for goods and services creates a demand for the
factors of production to produce those goods and services
Excludable - correct answer-the property of a good whereby a person can be prevented from
using it
Externalities - correct answer-costs or benefits felt beyond or "external to" those causing the
effects
Factor market (resource market) - correct answer-The market in which the factors of
production are bought by firms and sold by households.
free rider - correct answer-someone who attempts to benefit from a public good without
paying for it
Gini Coefficient - correct answer-a number that summarizes a country's level of income
inequality; perfect equality is 0, perfect inequality is 1
Graph of a Negative Externality of Production - correct answer-The free market produces too
much of the good.
Graph of a Positive Externality of Consumption - correct answer-The free market consumes
too little of the good.
Graph of a Positive Externality of Production - correct answer-The free market produces too
little of the good.
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