CH.7 MARKET INEFFECIENCIES Flashcards
The costs or benefits of a market activity that affect a third party
Externalities
Condition occurring when there is an inefficient allocation of resources in a market
Market failure
The costs of a market activity paid only by an individual participant
Internal Costs
The costs of a market activity imposed on people who are not participants in that market
External Costs
The sum of the internal costs and external costs of a market activity
Social Costs
A situation in which those not directly involved in a market activity experience negative or positive externalities
Third-party problem
The price and quantity combination that would exist if there were no externalities
Social Optimum
Relating to a firm’s handling of externalities, to take into account the external costs (or benefits) to society that occur as a result of the firm’s actions
Internalize
An owner’s ability to exercise control over a resource
Property Rights
Provision of an exclusive right of ownership that allows for the use, and especially the exchange, of property
Private Property
Theorem stating that if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities
Coase Theorem
A good that the consumer must purchase before having access to it
Excludable Good
A good that cannot be enjoyed by more than one person at a time
Rival Good
A good with two characteristics: it is both excludable and rival in consumption
Private Good
A good that can be jointly consumed by more than one person, and from which nonpayers are difficult to exclude
Public Good
