microeconomics market failure key terms Flashcards

1
Q

market failure

A

When the market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity

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2
Q

Complete market failure

A

A market fails to function at all and a ‘missing market’ results

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3
Q

Partial market failure

A

A market does function but it delivers the wrong quantity of a good or service which results in resource misallocation

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4
Q

Missing market

A

A situation in which there is no market because the functions of prices have broken down

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5
Q

Public good

A

A good such as a radio programme that is non-excludable and non-rival

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6
Q

Private good

A

A good such as an orange that is excludable and rival

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7
Q

Excludable good

A

People who do not want to pay can be excluded from benefiting the good

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8
Q

Rival good

A

When one person consumes a private good the quantity available to others diminishes

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9
Q

Quasi public good

A

A good which is not fully non-rival and / or where it is possible to exclude people from consuming the product

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10
Q

externality

A

Knock on effects of economic transactions upon third parties that exist when there is in divergence between private and social costs and benefits

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11
Q

Positive externality

A

An external benefit of that occurs when the consumption or production of a good causes a benefit to a 3rd party where the social benefit is greater than the private benefit

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12
Q

Private cost

A

Expenses or costs incurred by an individual or firm in the production or consumption of goods and services

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13
Q

Social benefit

A

The total benefit of an activity including the external benefit as well as the private benefit. As the equation social benefit = private benefit + external benefit

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14
Q

Private benefit

A

Personal gains or benefits that individuals or firms receive from the consumption or production of goods and services

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15
Q

Negative externality

A

An external cost that occurs when the consumption or production of a good causes costs to a third party whether social cost is greater than the private cost

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16
Q

Social costs

A

The total cost of an activity including the external costs as well as the private cost expressed as an equation social cost= Private cost+ External cost

17
Q

Information failure

A

Occurs when people make wrong decisions because they do not process or if they ignore relevant information they are often of myopic / shortsighted about the future

18
Q

Environmental market failure

A

Situation where the free market fails to Efficiently allocate resources and address environmental issues

18
Q

Property rights

A

the exclusive authority to determine how a resource is used/ Legal rights and ownership that individuals or firms have over assets or resources

18
Q

Tragedy of the Commons

A

Shared all common resources overexploited or depleted due to lack of individual responsibility or ownership

19
Q

Merit good

A

A good such as health care for which a social benefits of consumption exceed the private benefits. Judgments are involved in deciding that a good is a merit good

20
Q

Demerit good

A

Goods such as tobacco for which their social costs of consumption exceed the private costs. Judgments are involved in deciding that a good is a demerit good

21
Q

Occupational immobility

A

When workers are unwilling or unable to move from one type of a job to another for example because different skills are needed

22
Q

Geographical immobility

A

When workers are unwilling or unable to move from one area to another in search of work

23
Q

Asymmetric information

A

When one party to a market transaction possesses less information relevant to the exchange than the othere.g., seller of a second hand car who doesnt disclose all the faults the vehicle has

24
Q

monopoly

A

an extreme example of a market structure where only one firm supplies to the market

25
Q

indirect tax

A

Expenditure taxes that increase cost of production for firms but can be transferred to consumers via higher prices

26
Q

subsidy

A

a money grant to firms by the government to reduce costs of production and encouraging increased output

27
Q

Minimum price

A

A fixed price / price floor enacted by the government usually set above the equilibrium price, can distort markets and create excess supply

28
Q

Maximum price

A

A fixed price/ price ceiling enacted by the government usually set below the equilibrium market price, Can distort markets by creating access demand

29
Q

Regulation

A

rules/ laws enacted by the government that must be followed by the economic agents to encourage a change in behaviour

30
Q

pollution permits

A

Market based approach to control pollution Set a limit on the total amount of pollution that can be emitted by various industries these permits can be bought sold or traded amongst these industries

31
Q

free rider problem

A

a situation where some individuals benefit from a public good or service without contributing to its cost.