microeconomics market failure key terms Flashcards
market failure
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
Complete market failure
A market fails to function at all and a ‘missing market’ results
Partial market failure
A market does function but it delivers the wrong quantity of a good or service which results in resource misallocation
Missing market
A situation in which there is no market because the functions of prices have broken down
Public good
A good such as a radio programme that is non-excludable and non-rival
Private good
A good such as an orange that is excludable and rival
Excludable good
People who do not want to pay can be excluded from benefiting the good
Rival good
When one person consumes a private good the quantity available to others diminishes
Quasi public good
A good which is not fully non-rival and / or where it is possible to exclude people from consuming the product
externality
Knock on effects of economic transactions upon third parties that exist when there is in divergence between private and social costs and benefits
Positive externality
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
Private cost
Expenses or costs incurred by an individual or firm in the production or consumption of goods and services
Social benefit
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
Private benefit
Personal gains or benefits that individuals or firms receive from the consumption or production of goods and services
Negative externality
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