Market Failure: Externalities & Common Pool Resources Flashcards
what is allocative efficiency?
Neither consumer nor producer surplus can increase without the other one decreasing more.
What are positive externalities?
Benefits caused by producers or consumers but passed on to a third party.
What is the issue with merit goods?
There is an underprovision or underconsumption of the good.
what are negative externalities
costs caused by producers or consumers but passed on to a third party
What is the issue with demerit goods?
There is an overprovision or overconsumption of the good.
what are the characteristics of common pool resources?
- Non-excludable
- Rivalrous
What are non-excludable resources?
It is not possible to prevent others from using the resource
What are rivalrous resources?
If one person/firm uses the resource, the amount others can use is reduced.
what is the tragedy of commons?
when individuals prioritize themselves over others, causing the depletion of the resource.
