Ch 5. Market Failure and Socially Undesirable Outcomes I Flashcards
Common Pool Resources
Resources that are not owned by anyone, do not have a price and are available for anyone to use iwthout payment
Rivalrous
Characteristic of a good according to which its consumption by one person reduces its availability for someone else
Excludable
Characteristic of goods according to which it is possible to exclude people from using the good by charging a price for it, if someone is unwilling/unable to pay, they are excluded
Non-Excludable
Characteristic of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price
Tragedy of the Commons
Story about a commonly owned land, and how it became overused and degraded
Unsustainable Production
Production that uses resources unsustainably, leading to depletion/degradability
Market Failure
market fails to allocate resources efficiently, or to provide the quantity and combination of goods and services mostly wanted by society.
Externality
Actions of consumers/producers give rise to negative/positive side effects on other people who are not part of the action, and interest not taken into consideration
Positive Externality
Side effects on third party are positive or beneficial, aka spillover benefits
Negative Externality
Side effects on third party are negative and harmful
Socially optimum Output
Levels of output that is best from the socially point of view, determined by the achievement of allocative efficiency (MSB = MSC)
Marginal Private Cost (MPC)
Cost to producers of producing one more unit of a good
Marginal Social Costs (MSC)
Refers to costs to society of producing one more unit of a good
Marginal Private Benefit (MPB)
Refers to benefits to consumers from consuming one more unit of a good
Marginal Private Benefit (MPB)
refers to benefits to consumers from consuming one more unit of a good
Marginal Social Benefit (MSB)
Refers to benefits to society from consuming one more unit of a good
Negative Production Externalities
Negative externalities caused by production activities, leading to a situation where MSC > MPC
Pigouvian Tax
Indirect tac designed to correct negative externalities of production/consumption
Carbon Tax
Tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the problem of climate change
Tradable Permits
permits issued by the government authority or an international body, that can be traded in a market, objective is to lower the amount of pollutants
Collective Self Government
Solution involving the use of common pool resources where the users take control of the resources and use them in a sustainable way, counters the tragedy of the commons.
Negative Consumption Externality
Leading to a situation where MSB < MPB, external cost caused by consumptions
Demerit Goods
Considered to be undesirable for consumers and are over provided by the market. Reasons include over provision
