externalities Flashcards
Market failure
Where the free market mechanism fails to achieve economic efficiency
Inefficiency
Any situation where economic efficiency is not achieved
Marginal benefit
The additional satisfaction that a person recieved from consuming an additional unit of a good
Marginal cost
The cost added by producing one extra item of a product
Information failure
A lack of information resulting in consumers and producers making decisions that do not maximise welfare
Asymmetric information
Information not equally shared between two parties
Externality
An effect whereby those not directly involved in making a decison are affected by the actions of others
Third party
Those not directly involved in makinh a decison
Negative externalities
This exists where the social cost of an activity is greater than the private cost
Private cost
The cost incurred by those taking a particular action
Social cost
The total cost of a particular action
External cost
The cost that a consequence of externalities to third parties
Positive externalities
This exists where the social benefit of an activity exceeds the private benefit
Private benefit
The benefit directly accruing to those taking a particular action
Social benefit
The total benefit if a particular action
