chapter 14 - market failure Flashcards

1
Q

definition of:

market failure

A

occurs when market forces of demand and supply fails to allocate resources efficiently and causes external costs or external benefits

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2
Q

definition of:

private costs

A

production and consumption are the actual costs of a firm, individual or gov

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3
Q

definition of:

external costs

A

negative side effects of production and consumption incurred by third parties for which no compensation is paid

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4
Q

definition of:

external benefits

A

positive side effects experienced by third parties in which no money is paid for the beneficiary

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5
Q

definition of:

social costs

A

true costs of consumption or product to society; total sum of private and external costs

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6
Q

definition of:

private benefits

A

benefits of production and consumption enjoyed by a firm, individual or gov

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7
Q

definition of:

social benefit

A

true benefits of consumption or production; sum of private and external benefits

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8
Q

causes and consequences of market failure

A
public goods
merit goods
demerit goods
abuse of monopoly 
factor immobility
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9
Q

definition of:

public good

A

goods and services that are non excludable and non rivalrous, which are cause of market failure due to the lack of profit motive to produce them

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10
Q

definition of:

merit good

A

goods and services when consumed create positive spillover effects in an economy; under- provided and under-consumed without gov intervention

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11
Q

definition of:

demerit good

A

goods and services when consumed create negative spillover effects in an economy; over-produced and over-consumed without gov intervention

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12
Q

abuse of monopoly power

A

without gov control, firms can exploit market power to charge high prices and reduce supply

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13
Q

factor immobility

A

occurs when it’s difficult for factors of production to move or switch between different uses or locations

  • occupational immobility
  • geographical immobility
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