Market Failure - Externalities & Common Pool Resources Flashcards
Allocative Efficiency
The social optimum when resources are distributed in the most effective and beneficial way.
Market Failure
The inability of the free market to achieve allocative efficiency.
Marginal Private Benefits
The additional value gained by households or firms when consuming/producing an extra unit of a good or service.
Marginal Private Costs
The additional expense incurred by households or firms when consuming/producing an extra unit of a good or service.
Marginal Social Benefits
The additional value gained by society when consuming/producing an extra unit of a good or service.
Marginal Social Costs
The additional expense incurred by society when consuming/producing an extra unit of a good or service.
Positive Externalities
Benefits of a good or service enjoyed by a third party not directly involved in an economic transaction.
Negative Externalities
Costs of a good or service experienced by a third party not directly involved in an economic transaction.
Merit Goods
Goods and services that create positive externalities when produced or consumed
Demerit Goods
Goods and services that create negative externalities when produced or consumed
Common Pool Resources
Non-excludable but rivalrous resources.
Indirect Tax
A payment taken indirectly from consumers by charging for their expenditure on goods and services.
Carbon Tax
A tax on greenhouse gas emissions that aim to reduce pollution.
Tradable Permits
Government-regulated tradable contracts that allow for pollution. They can be traded amongst firms to result in a more socially optimum level.
Subsidies
Financial assistance from the government to firms that lower their costs of production, in order to increase output.
