8 - Market Mechanism and Market Failure Definitions Flashcards
Market Failure
When the market mechanism leads to a misallocation of resources in an economy, either completely failing to provide a good or service, or providing the wrong quantity.
Complete Market Failure
A market fails to function at all, and a missing market prevails.
Partial Market Failure
A market functions, but it delivers the wrong quantity of a good or service.
Missing Market
A situation in which there is no market, because the functions of prices have broken down.
Private Good
A good which is excludable and rival.
Excludable Good
People who don’t want to pay for a good can be excluded from benefitting.
Rival Good
When one person consumes a private good, the quantity available to others diminishes.
Public Good
A good which is non excludable and non rival.
Quasi Public Good
A good which is not fully non rival, where it is impossible to exclude people from using the product.
Externality
The consumption of a good causing unintended side effects.
Positive Externality
Occurs when consuming a good or service causes a benefit to a third party.
Negative Externality
Occurs when consuming or producing a good or service causes a cost to a third party.
Private Cost
Any cost that a person or firm pays in order to buy or produce goods or services.
Social Benefit
The total benefit to society from consuming a good or service.
Private Benefit
The benefit derived by an individual or firm directly involved in a transaction as either a buyer or a seller.
Social Cost
The sum of private costs borne from the economic agent, and external costs imposed on others by an activity.
Information Failure
Occurs when people have inaccurate information or data, which could lead to wrong choices being made.
Environmental Market Failure
Market failure which has an effect on the environment, such as deforestation.
Property Rights
Gives the owner or right holder the ability to do with the property what they choose.
Tragedy of the Commons
A problem in which each individual is incentivised to act in a way that will be harmful to all individuals.
Merit Good
A good that would be under consumed in a free market, as full benefits aren’t fully understood.
Demerit Good
A good which has a negative impact on the consumer.
Occupational Immobility
The inability of labour to move from one type of job to another.
Geographical Immobility
Barriers stopping people moving from one area to another to find work.
Asymmetric Information
One party in a transaction being in possession of more information than the other.
Indirect Tax
A tax levied on goods or services rather than on an individual company.
Subsidy
A benefit given to an individual, business or institution, usually the government.
Minimum Price
The minimum legally allowed prices for a good, set by the government.
Maximum Price
A limit or cap on a price set by a government or organisation.
Regulation
A requirement enforced by the government or a certain industry.
Pollution Permits
Regulate allowances, allowing producers to generate pollution.
