1.3 Market failure Flashcards
Asymmetric information
– where buyers and sellers have different amounts of information, with one group having more than the other
Complete market failure
– when a market fails to supply any of a good which is demanded, creating a missing market.
External benefits of consumption
– when the social costs of consumption are different from the private costs of consumption.
External benefits of production
- when the social costs of production are different from the private costs of production.
Externality
– the difference between the social costs and benefits and private cost and benefits.
Free rider
– a person or organisation which received benefits that others have paid for without making any contribution.
Imperfect information
– where buyers and sellers both lack information to make an informed decision.
Marginal social and private costs and benefits
the social and private costs and benefits of the last used either produced or consumed.
Market failure
where resources are inefficiently allocated due to imperfections in the working of the market mechanism.
Negative externality
net social cost is greater than net private cost.
Non-rejectability
once provided it is impossible for any economic agent not to consume the good.
Principal-agent problem
– occurs when the goal of principals, those standing to gain or lose from a decision, are different from agents, those making the decision on half of the principal.
Private cost and benefit –
the cost of benefit of an activity to an individual economic unit such as a consumer or firm.
Quasi-public good
a good which does not preferably possess the characteristics of non-rivalry and non-excludability and yet which also is not perfectly rival or excludable.
Public good
a good which possesses the characteristics of non-rivalry and non-excludability.
