1.17 Market failures And Externalities Flashcards
1
Q
What does market failure refer to?
A
When the price mechanism leads to an inefficient allocation of resources
2
Q
What is an external cost (negative externality)?
A
A cost to a 3rd party that is not involved in the making, buying / selling and consumption of a specific good/service
3
Q
What is an external benefit (positive externality)?
A
A benefit to a third party that is not involved in the making, buying / selling and consumption of a specific good / service
4
Q
What is the difference between private benefits and costs and external benefits and costs?
A
Private benefits and private costs are only applicable to those within the transaction whereas external costs and external benefits apply to those that are third parties to the transaction
