Market Failure Flashcards
A market in which the demand and supply curves represent the benefits and costs to only the consumers and producers
private market
The cost to the producer of an additional unit of a good or service
private marginal cost
The benefit to the consumer of an additional unit of a good or service
private marginal benefit
The cost of an additional unit of a good or service that is imposed on people other than the producer
External marginal cost
The benefit of an additional unit of a good or service that is enjoyed by people other than the direct consumer of the good or service
external marginal benefit
The benefit enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service
externality
A situation in which a market fails to produce the efficient level of output that maximizes total surplus
market failure
The cost to society of producing an additional unit of a good or service; the sum of private marginal cost and external marginal cost
social marginal cost
The benefit to society of consuming an additional unit of a good or service; the sum of private marginal benefit and external marginal benefit
social marginal benefit
The level of production and consumption of a good or service such that the marginal social benefit is equal to the marginal social cost
Socially optimal production/consumption
The unpaid benefit enjoyed by a third party not directly involved in the production or consumption of a good or service
positive externality
The demand for a good or service that considers only the private benefits of its consumption
private demand
The demand for a good or service that reflects both the private and external benefits of its consumption
social demand
The supply of a good or service that reflects only the private costs of its production
private supply
The supply of a good or service that reflects both the private and external costs of its production
social supply
The characteristic of some goods and services whereby the consumption of the good or service by one person reduces the quantity available for consumption by others.
rival
The characteristic of some goods or services whereby the consumption of the good or service by one person does not diminish the amount available to someone else.
nonrival
A characteristic of some goods or services whereby people can be prevented, or excluded, from consuming the good or service.
excludable
A characteristic of some goods or services whereby people cannot easily be prevented from consuming the good or service.
nonexcludable
Any good or service that is rival and excludable
private good
Any good or service that is both nonrival and nonexcludable
Public Good
The idea that when a good is noneexludable, people will choose to consume the good without paying for it, making it difficult for private companies to be profitable
free-rider problem
The exclusive right to determine how a resource is used
property right
A situation in which a market fails to produce the efficient level of output that maximizes total surplus
market failure
If a property right is ell defined and transaction costs are low, resources will naturally gravitate to their highest-valued use, regardless of who owns the property.
Coase theorem
The costs, in terms of time, energy, and resources, associated with searching out, negotiating, and completing a transaction
transaction cost
