10 - government intervention in the market Flashcards
where the free market fails to achieve an efficient allocation of recourses
market failure
when firms are not producing at minimum possible average total cost
productive inefficiency
when resources are not sure to produce the goods and services wanted by consumers
allocative inefficiency
the use of government spending and taxation to meet economic objectives
fiscal policy
when government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation
government failure
negative spillover effects to third parties not involved with the consumption or production of the good. Social costs exceed private costs
negative externalities
the over-exploitation of natural resources that are not owned by single individuals or organisations
‘tragedy of the commons’
a right to emit a given volume of waste or pollution into the enviroment
pollution permit
an agreement made at a global summit meeting in Kyoto, Japan, to cut world carbon emissions
kyoto protocol
an investment appraisal technique that takes into account all the private and external costs and benefits of an economical decision
cost-benefit analysis (CBA)
a price calculated to more accurately reflect the costs and benefits to society of a good, particularly where no market price has previously been calculated
shadow price
