market failure definitions Flashcards
market failure
failure of the free market to allocate resources efficiently causing the social surplus to not be maximised
overallocation of resources
too many resources allocated to production of a good
underallocation of resources
not enough resources allocated to production of a good
externalities
actions of consumers or producers give rise to positive or negative side-effects on those not part of the transaction
marginal private benefits
benefits to consumers of consuming one ore unit
marginal social benefit
benefits to society of consuming one more unit
marginal private cost
cost to producers of producing one more unit
marginal social costs
cost to society of producing one more unit
pigouvian tax
indirect tax to correct negative externality
tradable permits
- government gives firms “permits to pollute”
- permits can be traded on the free market
negative consumption externalities
negative input imposed to the 3rd parties under consumption without compensating the 3rd parties
demerit goods
goods that are undesirable but are over-provided in the market causing negative consumption externalities to be given out
merit goods
goods/services which benefit consumers and society but are underprovided by the market
eg. vaccines, education
inefficient resource allocation
resources are not allocated to produce goods mostly preferred by the society with the lowest cost, in which total social surplus is not maximised
negative production externality
negative impact to the 3rd parties under production without compensating the other parties
postive production externality
positive impact to the 3rd parties under production without receiving payment from the 3rd parties
public goods
goods that are non-rival and non-excludable in consumption
common pool resources
resources that are rival and non-excludable in consumption
non-excludable
people will can use it without any restrictions so over-depletion and over use will occur
government intervention
involvement or policies adopted by the government in the free market to achieve certain goals
free rider problem
one user uses, then others can use without paying
subsidy
financial assistance given by the government to firms for lowering production cost and increase outputs
positive consumption externality
positive impact to the third parties without receiving payments from the third parties
