Chapter 8: Market failures Flashcards
Marginal private cost
The cost to an individual or firm of an economic transaction.
Externalities
Costs or benefits that spill over to third parties external to a market transaction.
Marginal external cost
The spillover cost to third parties of an economic transaction.
Marginal social cost
The full cost to society of an economic transaction, including private and external costs.
Marginal private benefit
The benefit to an individual or firm of an economic transaction.
Marginal external benefit
The spillover benefit to third parties of an economic transaction.
Positive externality
A positive spillover effect to third parties of a market transaction.
Marginal social benefit
The full benefit to society of an economic transaction, including private and external benefits.
Ex ante
A term that refers to future events.
Ex post
A term that refers to after the event.
Merit good
A good that would be under-consumed in a free-market, as individuals do not fully perceive the benefits obtained from consumption.
Solute of information
Where economic agents do not properly perceive the benefits or disadvantages of a transaction.
Partial market failure
Where the free market provides a product but with a misallocation of resources.
Demerit good
A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise.
Public good
A good that possesses the characteristics of non-excludability and non-rivalry in consumption.
Free rider problems
Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods
Quasi-public good
A good that some of the qualities of a public good but does not fully posses the two required characteristics: non-rivalry and non-excludability.
Private good
A good that is both excludable and rivalry in consumption.
Complete market failure
Where the free market fails to provide a product at all, i.e. Public goods
Occupational immobility
As patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack the necessary skills.
Geographical immobility
Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs.
Income
A flow of earnings to a factor over production over a period of time, eg. wages or salaries.
Wealth
A stock of owned assets, eg. Housing property or a portfolio of shares.
