Chapter 1

Positive externalities are the benefits that third parties receive from an economic activity.

Negative externalities are the costs that third parties bear from an economic

Government intervention can be used to address market failures and externalities, through regulations, taxes, subsidies, and other measures.

Market failure occurs when the market fails to allocate resources efficiently, resulting in a market outcome that is not optimal for society.

A public good is a good that is both non-excludable and non-rival in consumption, meaning that it is difficult to exclude people from using it and one person's use does not reduce the availability of the good for others.

Public goods have the characteristics of being non-excludable and non-rival in consumption.

A common resource is a good that is rival in consumption but non-excludable, meaning that one person's use reduces the availability of the good for others but it is difficult to exclude people from using it.

Common resources have the characteristics of being rival in consumption but non-excludable.

A private good is a good that is both excludable and rival in consumption, meaning that it is possible to exclude people from using it and one person's use reduces the availability of the good for others.

Private goods have the characteristics of being excludable and rival in consumption.

The public sector is the portion of the economy that is owned and operated by the government.

The private sector is the portion of the economy that is owned and operated by private businesses.

A mixed economy is an economic system that combines elements of a market economy and a command economy, in which both the private sector and the public sector play a role in the production and distribution of goods and services

A command economy is an economic system in which the government determines the production and distribution of goods and services, with little or no role for the market.

A market economy is an economic system in which the production and distribution of goods and services are determined by the market, through the interaction of supply and demand.

The opportunity cost of an activity is the value of the next-best alternative foregone.

An incentive is a factor that motivates and influences people's decisions and actions.

The basic economic problem is the scarcity of resources, which forces people to make choices about how to allocate them.

Production is the process of creating goods and services, while consumption is the use of goods and services to satisfy wants and needs.

Specialization is the concentration of production on a limited number of goods or tasks, which allows for increased efficiency and productivity.

A market is a mechanism through which buyers and sellers interact to exchange goods and services.

The price of a good or service is determined by the interaction of supply and demand in the market.

The law of demand states that, other things being equal, the quantity demanded of a good or service is inversely related to its price.

The law of supply states that, other things being equal, the quantity supplied of a good or service is directly related to its price.

Market equilibrium occurs when the quantity demanded of a good or service equals the quantity supplied, at which point the price of the good or service is stable.

Price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price.

Price elasticity of supply measures the responsiveness of the quantity supplied of a good or service to a change in its price.

Inelastic demand or supply means that the quantity demanded or supplied is relatively unresponsive to a change in price.

Elastic demand or supply means that the quantity demanded or supplied is relatively responsive to a change in price.