1.3.1 t- types of market faliure , public goods, infomation gaps Flashcards
Efficent equalibrium
Where there is most benefit for the lower cost
Market failure
when the price mechanism leads to a missalocation of resources
What can market faliure occur from
- Positive externalities
- negative externalities
- Public goods
- information gaps
Negative externalities
Costs which affect third parties outside the price mechanism
Negative consumption externalities
are caused when there is a negative externaltity of the consumption from a consumer
Negative production externalties
caused when there is a negative externality of production from producers
Supply curve shows
marginal cost (MPC)
Demand Curve
margninal benefit (MPB)
Social costs =
Private costs + external costs
Social benefit =
Private benefit + external benefit
Welfare =
Social benefit - social cost
How is overproduction shown
The differnce between the quantitiy Free market and the Free market equalbrium of the social optimum quantity
Postive Consumption externalties
Benefits of a transaction that affect third parties outside the price mechanism
What will happen if producers dont take into account the external benefits
This will result in under production and under consumption
Positive production externalties
The cost incurred by the third party outside of the price mechanism from the production of a producer
