LS17 - Market Failure & Externalities Flashcards
What is market failure?
Too much/little of a good produced and/or consumed compared with the socially optimum level of output, or when the price mechanism leads to an inefficient allocation of resources
What is an external cost?
Cost to a 3rd party that isn’t involved in the making, buying or selling and consumption of a specific good/service
What is an external benefit?
Benefit to a 3rd party that is not involved in the making, buying/selling and consumption of a specific good/service
What involved in a transaction?
Producing
Selling
Consuming
What are the 3 types of market failure?
Externalities
Public goods
Information gaps
What are externalities?
When consumption and production of some good/services provides costs or benefits to economic agents outside of a transaction
What is the market failure for public goods?
Under provision of resources
What are information gaps?
Some market have information problems which result in over/under consumption
