2.8 Microeconomics Market Failure Flashcards

1
Q

*

Market failure

A

Failure of the market to allocate resources efficiently

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2
Q

Socially optimal allocation

A

marginal social benefit=marginal social cost

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3
Q

Marginal social benefit

A

Additional benefit society gains for consuming an additional unit of a good.

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4
Q

Marginal social cost

A

the additional cost to society of producing an extra unit of a good.

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5
Q

MSC

A

Marginal private cost+ marginal external cost

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6
Q

MSB

A

Marginal private benefit+ Marginal external benefit

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7
Q

External benefit

A

The benefit to third parties outside the market transation between consumer and producer

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8
Q

External cost

A

Cost to third part outside the market transaction between consumer and producer

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9
Q

Externalities

A

Spillover effects on third parties

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10
Q

Welfare loss

A

the social loss incurred when the market diverges from the social optimum (MSB=MSC).

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11
Q

Deadweight welfare loss

A

The loss to society of an externality not taken into account in the private transation between consumer and producer.

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12
Q

Negative consumption externality

A

When the optimal quantity consumed by society is less than the amount exchanged in the private market.

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13
Q

Positive consumption externality

A

When the optimal quantity consumed by society is more than the quantity consumed in the private market.

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14
Q

Negative production externality

A

When the optimal quantity of a good produced by society is less than the amount produced in the private market.

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15
Q

Positive production externality

A

When the optimal quantity produced by society is more than the quantity produced in the private market.

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16
Q

Fruit and vegetables

A

Positive consumption externality

17
Q

Vaping

A

Negative consumption externality

18
Q

Air pollution from a cement works

A

Negative production externality

19
Q

Traffic congestion

A

Negative consumption externality

20
Q

Vaccines

A

Positive consumption externality

21
Q

Loud music from a rock concert

A

Negative consumption externality

22
Q

Climate change

A

Negative production and consumption externality

23
Q

Christmas lights

A

Positive consumption externality

24
Q

Hedgrow planting on a farm

A

Positive production externality

25
Q

In work training

A

Positive production externality