Glossary Category: Economic Efficiency, Market Failure

efficiency

Efficiency refers to how effectively an economy uses limited resources to create the highest level of output or

The principal-agent problem occurs when one person or group, called the agent, makes decisions for another person or

X-inefficiency happens when a company fails to operate at its maximum potential. Instead of producing the most output

Economic efficiency means that limited resources are used in the best possible way. This happens when it is

Moral hazard happens when a person or group takes more risks because they do not have to pay

Asymmetric information occurs when one person or group in a deal has more or better information than the

Social benefits refer to the total value gained by society from the production or consumption of a product

Social costs represent the total burden placed on society due to the production or consumption of a specific

Deadweight welfare loss (also known as deadweight loss) refers to the net loss of economic well-being that happens

A negative externality happens when the production or use of a product creates harmful effects for people who