Market Failure Flashcards
Market Failure
When the market doesn’t produce efficient outcomes, and doesn’t have allocative efficiency
Externalities
Costs or benefits of economic activity to 3rd party members instead of the party which causes them
Positive externality
Benefits of economic activity that aren’t factored in production, like when someone is sick and they take the day off so no one else gets sick
Negative externality
Cost of economic activity that aren’t factored for in production costs, such as pollution
Public Good
Goods that everyone can use at the same time and are non excludable and can’t be provided by the private market
Private Good
Goods and services that are excludable and rivalries and therefore provided by the private market
Publicly Provided good
Goods and services that would be provided by the market
Rivalry
Use of a good by one person prevents the use of it to another
Excludable
People are excluded from using the product
Demerit Good
A good with negative externalities that has costs for society
Free riders
Those who benefit form a good or service without paying a share or its cost
Internalize the externality
Making the user pay or be responsible
Tradable permits
A process whereby each country is allocated certain levels of pollution (or carbon emissions). Countries that do not use their quota can then trade their permits to countries that have used more than their quota. Creates a market and therefore an incentive system to reduce pollution and give possible funds to some LDC’s.
Assymetric infromatio
When one party has access to information that another party doesn’t
Pincipal Agent Dilema
When employing an agent the principal is not sure wether it will benefit in their best interest or their own best interest.
