Chapter 8: Market failures

Question 0

Marginal private cost

Answer 0

The cost to an individual or firm of an economic transaction.

Question 1

Externalities

Answer 1

Costs or benefits that spill over to third parties external to a market transaction.

Question 2

Marginal external cost

Answer 2

The spillover cost to third parties of an economic transaction.

Question 3

Marginal social cost

Answer 3

The full cost to society of an economic transaction, including private and external costs.

Question 4

Marginal private benefit

Answer 4

The benefit to an individual or firm of an economic transaction.

Question 5

Marginal external benefit

Answer 5

The spillover benefit to third parties of an economic transaction.

Question 6

Positive externality

Answer 6

A positive spillover effect to third parties of a market transaction.

Question 7

Marginal social benefit

Answer 7

The full benefit to society of an economic transaction, including private and external benefits.

Question 8

Ex ante

Answer 8

A term that refers to future events.

Question 9

Ex post

Answer 9

A term that refers to after the event.

Question 10

Merit good

Answer 10

A good that would be under-consumed in a free-market, as individuals do not fully perceive the benefits obtained from consumption.

Question 11

Solute of information

Answer 11

Where economic agents do not properly perceive the benefits or disadvantages of a transaction.

Question 12

Partial market failure

Answer 12

Where the free market provides a product but with a misallocation of resources.

Question 13

Demerit good

Answer 13

A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise.

Question 14

Public good

Answer 14

A good that possesses the characteristics of non-excludability and non-rivalry in consumption.

Question 15

Free rider problems

Answer 15

Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods

Question 16

Quasi-public good

Answer 16

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.

Question 17

Private good

Answer 17

A good that is both excludable and rivalry in consumption.

Question 18

Complete market failure

Answer 18

Where the free market fails to provide a product at all, i.e. Public goods

Question 19

Occupational immobility

Answer 19

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.

Question 20

Geographical immobility

Answer 20

Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs.

Question 21

Income

Answer 21

A flow of earnings to a factor over production over a period of time, eg. wages or salaries.

Question 22

Wealth

Answer 22

A stock of owned assets, eg. Housing property or a portfolio of shares.