market failure Flashcards
market failure meaning
misallocation of resources leading to a net social welfare loss
types of market failure
externalities
under provision of public goods
imperfect market information
externalities meaning
cost or benefit a 3rd party receives from an economic transaction where the 3rd party isn’t involved
public good meaning
good which is non rivalry, non excludable
under provided because of the free rider problem
free rider problem
consumers benefiting from the use of a good or service that they have not contribute to.
information gaps meaning
when one of the economic agents has more information than the other agents so they use it to their benefit
private cost / benefit meaning
cost/ benefit to the individual participating in the economic activity
social cost/ benefit meaning
cost/ benefit of the activity to society as a whole
external cost/ benefit meaning
cost/ benefit to a 3rd party not involved in the economic activity
merit goods meaning
goods with positive externalities in consumption
under consumed and under produced
demerit goods meaning
goods with negative externalities in consumption
over consumed and over produced
ways for the government to fix externalities
indirect tax on demerit goods
subsidise public and merit goods
provide merit and public goods
higher regulation on demerit goods
provision of information
quasi public goods meaning
public goods which are not perfectly non rivalry or non excludable
symmetric information meaning
when all economic agents have perfect knowledge
what causes imperfect information
misunderstanding the true cost or benefit of a product
uncertainty about cost or benefit
complex information
inaccurate or misleading information
