Market Failure Flashcards
Define public goods
Goods that are provided by the government and is consumed by the public. These goods are non-excludable and non-rivalrous.
Define non-excludable
Is when a producer cannot stop certain people from consuming their products. This even includes the people who have not paid.
Define non-rivalrous
The consumption of a product does not lead to a reduction available to others. If product A was used by a consumer their is still the same amount to be consumed by others.
Define externalties
Transactions that impact on a third party not involved in transactions. Externalties can have a positive or negative effect on third parties.
Define negative externalties
Transactions that have a harmful effect on third parties not associated in the transaction.
Eg- smoking or pollution
Define positive externalties
Transactions that have a beneficial impact on people, but have a negative impact if people don’t pay. Third parties reap benefits without adding aggregate demand.
Eg-flu vaccines and merit goods
Define common access goods
Goods that are naturally occurring and not owned by anyone.
Eg- fish, trees and water
Define rivalrous
Ones consumption can impact on consumption by others. When people act in self-interest it can lead to over consumption and a deduction in resources.
eg- carbon tax
Define asymmetric information
One transaction having more information than the other. If the advantage impacts on decision making by others this is market failure.
Define government failure
When the gov implement policies to correct market failure but leads to a misallocation of scarce resources.
Eg- tobacco tax-leads to illegal imports of tobacco.
Define market failure
When resources as allocated in an insufficient way in a free market.
eg- public goods
-asymmetric information
