2.8 Market failure and externalities Flashcards
What is Market Failure?
Occurs when market forces cause a misallocation of resources.
What is Complete Market Failure?
Occurs when the market for a good or service simply does not exist.
What is Partial Market Failure?
Occurs when the market for a good or service does exist, but it causes resources to be misallocated.
What is a externality?
An effect of consuming or producing a good/service that is external to the market transaction and is therefore not accounted for when the free market finds equilibrium.
`What are private costs?
Costs that impact the economic agents directly involved in the market transaction of a good. ( Neg)
What are external costs?
Costs that impact a third party who is not involved in a market transaction (NEG)
What are Social Costs?
Total costs involved involved in the market transaction, involving both private and external costs.
What are Private Benefits?
Benefits that impact the economic agents directly involved in the market transaction of the good.
What are External Benefits?
Benefits that impact a third party who is not involved in the market transaction
What are positive externalitys?
Results from the consumption or production of a good/service and impacts a third party in a positive way.
What is bad about Positive externalities for fir,ms?
They do not get compensation for the benefits to the society.
What are social benefits?
Total Benefits involved in the market transaction including both private and external benefits.
Best example of a positive externality?
Vaccinations.
What is a negative Externality?
Results from the production or consumption of a good/service and impacts a third party in a negative way.
What is a negative externality likely to result in?
The overproduction of a good,
