1.3 market failure Flashcards
1
Q
market failure
A
occurs when the free market equilibrium does not lead to a socially optimal allocation of resources
2
Q
positive externality
A
external benefits to 3rd parties outside the transaction (eg: education benefits companies hiring)
3
Q
negative externality
A
external costs to 3rd parties outside the transaction (eg: pollution damages health)
4
Q
private cost/benefit
A
the cost/benefit by a firm or consumer as part as of their production or economic activity
5
Q
external cost/benefit
A
the cost/ benefit that 3rd parties receive (same concept as positive/negative externalities)
6
Q
social cost/benefit
A
the sum of the private costs/benefits and external costs/benefits
7
Q
welfare loss
A
a cost to society created by market inefficiency
