1.3 market failure Flashcards
market failure def
when the price mechanism fails to allocate resources efficiently leading to a deadweight loss
what does deadweight loss mean
loss of efficiency for society as a whole - something can be corrected and make some people better off without making others worse
government intervention def
the government taking aciton to remedy allocatively inefficient markets
complete market failure
when there is no market whatsoever ‘missing market’
partial market failure
when there is a market but there is misallocation of resourcs
externalities def
costs/benefits on a third party created by economic agents when undertaking activities
types of market failure:
externalities, monopoly, oligopoly, monopsony, tragedy of the commons, unemployment, poverty, inequality, public goods, demerit goods
what is tragedy of the commons
overuse / destruction of finite but valuable good poeple have unlimitedc access to
public good def
a good that is non rivalrous (consumption does not reduce availability) and non excludable (impossible tos top people from using it)
examples of public goods
the army, street lights, public parks (could have tragedy of the commons)
positive externality
social benefit not included in cost
social costs < private costs
negative externality
cost to society not in the cost paid for
social costs > private costs
private costs
cost of prod/cons goods paid for by third partiess
social costs
cost of prod/cons goods paid for by society
marginal analysis
cost/benefit when an additional unit is consumed or produced
