Market Failure Flashcards
1
Q
What is market failure?
A
Where the market produces a less than optimal allocation of resources from the point of view of society
2
Q
What are the 3 types of market failure?
A
- Externalities
- Public goods
- Information gaps
3
Q
What is an externality?
A
An external impact of a transaction on an uninvolved third party
4
Q
When do external costs occur?
A
Social costs > private costs
5
Q
When do external benefits occur?
A
Social benefit > private benefit
6
Q
What are private goods?
A
Excludable and rivalrous goods that generate profits
7
Q
What are public goods?
A
Non-excludable and non-rivalrous goods that benefit society
8
Q
What is the free-rider problem?
A
Where people benefit from public goods without paying for them
9
Q
What is asymmetric information?
A
Where one party has information than the other in a transaction
