micro- market failure Flashcards
what is market failure?
occurs when left to the free market a misallocation of resources exists
what are externalities?
costs + benefits to a third party created by economic agents when undertaking their activities
what is a negative externality?
costs to a third party that are not included in the price of the economic activity
what is a positive externality?
benefits to a third party that are not included in the price of the economic activity
what is a social cost?
costs of consuming or producing goods or services that are paid for by society
what is a private cost?
costs of producing or consuming goods or services paid for by an individual or a firm
what is a social benefit?
include the private benefits and those benefits of consuming or producing goods or services that are received by society
what is a private benefit?
benefits of producing or consuming goods or services that are received by an economic agent e.g. individual or firm
what is marginal analysis?
looks at benefit or cost we receive from consuming or producing one more unit
what is marginal cost?
cost to producer of producing one more unit of a good or service
what is marginal benefit?
benefit to consumer of consuming one more unit of a good or service
what is a marginal social benefit?
includes MPB but also additional benefits to society of consuming or producing one extra unit
what is marginal social cost?
includes MPC but also additional costs to society of consuming or producing one extra unit
what is MPB/MPC
marginal private benefit/cost
social cost=
private cost + external cost (negative externality)
