Chapter 14: Market Failure Flashcards
Third parties
Those not directly involved in producing or consuming a product
Social benefits
The total benefits to a society of an economic activity
Social costs
The total costs to a society of an economic activity
Private benefits
Benefits received by those directly consuming or producing a product
Private costs
Costs borne by those directly consuming or producing a product
External costs
Costs imposed on those who are not involved in the consumption and production activities of others directly
External benefits
Benefits enjoyed by those who are not involved in the consumption and production activities of others directly
Socially optimum output
The level of output where social cost equals social benefit and society’s welfare is maximised
Information failure
When people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices
Merit goods
Products which the government considers consumers do not fully appreciate how beneficial they are and so which will be under-consumed if left to market forces. Such goods generate positive externalities
Demerit goods
Products which the government considers consumers do not fully appreciate how harmful they are and so which will be over-consumed if left to market forces. Such goods generate negative externalities
Public good
A product which is non-rival and non-excludable and hence needs to be financed by taxation
Private good
A product which is both rival and excludable
Monopoly
A single seller
Price fixing
When two or more firms agree to sell a product at the same price
