1.5.1 - 1.5.2 Flashcards
Third party
Individual/entity involved in a transaction but has a lesser interest
Externalities
A cost/benefit that affects a party who did not choose to incur that cost/benefit
External costs
A cost of a third party where compensation is not paid
External benefits
A benefit for a third party
Private costs
A cost incurred by the producer/consumer that directly affects them
Private benefits
Benefit incurred by producer/consumer that directly benefits them
Social costs
A cost that negatively affects consumers
Social benefits
A benefit to an individual/group of consumers
Overproduction
Making too much
Supply is therefore higher than demand
Underconsumption
Setting price too high
Less people buy the niche product
Therefore too much is left in stock
Underproduction
Not enough units made
Supply does not meet demand
Underconsumption
Not enough customers
Demand does not meet supply
Market failure
Allocation of goods/services in a free market is not efficient
Leads to social welfare loss
Negative externalities
Occurs when production and/or consumption inflicts third party costs on others for which no appropriate compensation is paid
Command economy/
Planned economy
A type of economic system where Investment, Production, Allocation of capital goods Take place according to economy-wide economic and production plans
