ECO440H5 Chapter Notes -Economic Surplus, Marginal Revenue, Deadweight Loss

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15 May 2014
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Adverse selection: when a party enters into an agreement in which they can use their own private information to the disadvantage of another party. Asymmetry of information: a market situation where all participants do not have access to the same level of information. Deadweight loss: the loss in allocative efficiency occurring when the loss of consumer surplus outweighs the gain in producer surplus. Externatlity: the cost or benefit arising from an individual"s production or consumption decision which indirectly affects the well-being of other. Market failure: a situation in which the market does not result in an efficient allocation of resources. Monopoly power: the ability of a monopoly to raise prices by restricting output. Moral hazard: a situation in which one of the parties to an agreement has an incentive, after the agreement is made, to act in a manner that brings additional benefits to themselves at the expense of the other party.

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