1.3 (market failure) Flashcards
1
Q
define market failure
A
when the price mechanism leads to a misallocation of resources.
2
Q
what are the 4 types of market failure?
A
- Negative externalities
- Positive externalities
- Public goods
- Information gaps
3
Q
define negative externality
A
costs which affect third parties outside the price mechanism
4
Q
define negative consumption externalities
A
costs that effect third parties, as a result of the consumption of a good.
5
Q
define negative production externalities
A
cost which affects third parties, as a result of the production of a good.
6
Q
what is the formula for social cost?
A
social cost= private costs+ external costs
7
Q
what is the formula for social benefit?
A
social benefit= external benefits+ private benefits
8
Q
A
