1.3 Flashcards
market failure definition
when free market fails to allocate resources efficiently
externalities definition
third party costs & benefits not considered by the free market
can be producer/ consumer and +ve/ -ve
public good definition
non-rivalrous (consumption wont affect others, MC=0) and non-excludable (everyone gets it) and suffer from free riders
information gaps definition
lack of or uneven information to consumer or producer so irrational decision
free-rider problem
those who benefit do not pay, public good becomes under-provided
tragedy of commons
shared resources and self-interest leads to total loss
private g&s
excludable (P<0) and rivalrous (MC>0)
common g&s and example
non-excludable (P=0) and rivalrous (MC>0)
e.g. NHS, education
club g&s and example
excludable (P<0) and non-rivalrous (MC=0)
e.g. online memberships, toll roads (when not busy)
pure public g&s and example
non-excludable (P=0) and non-rivalrous (MC=0)
e.g. defence, web, protected areas, streetlights
public good graph
demand but no supply so E at O
gov. intervenes, new vertical (finite) supply so E1, DWL to CS
public good graph evaluation
in reality gov has info gap so vertical supply to left (under-provision, lack of money, still some DWL) or right (over-provision, O.C/ waste)
externalities definition
economic transaction which affects a third party, can be produced/ consumer side and +ve/ -ve
consumer externalities
shifts demand, MSB = MPB + externality
e.g. education, cigarettes
producer externalities
shifts supply, MSC = MPC + externality
e.g. beekeeping, manufacturing
