microeconomics - externalities

Question 1

market failure

Answer 1

Market Failure is defined as the failure of the free market to achieve allocative
efficiency, resulting in the over-allocation or under-allocation of resources
relative to the socially efficient level, or to achieve equity.

Question 2

allocative efficiency

Answer 2

Allocative Efficiency is the situation in which society produces and consumes a
combination of goods and services that maximises its welfare. It is achieved when goods and services wanted by the economy are produced in the correct quantities.

Question 3

When does allocative efficiency occur?

Answer 3

1. society produces at a point on the PPC curve
2. P = MC
3. MSB = MSC

Question 4

equity

Answer 4

Equity is the concept of fairness in society, referring to equal life chances regardless of identity, providing all citizens with a basic minimum amount of income, goods and services or to increase funds for redistribution.

Question 5

What are some causes of market failure?

Answer 5

externalities, merit/demerit goods, info failure, market dominance, immobility of FOPs, public goods, excessive income inequality

Question 6

externalities

Answer 6

spillover costs or benefits to third parties who are not directly involved in the production or consumption of goods and services.

Question 7

marginal private cost (MPC)

Answer 7

refers to the additional cost incurred by producers or consumers who produce or consume an additional unit of the good.

Question 8

marginal external cost (MEC)

Answer 8

refers to the cost incurred by the production or consumption of an additional unit of a good on third parties (3rd Party Effects) who are
not directly involved in the production or consumption of the goods.