Mirco : Government Intervention Flashcards
Market failure defenition
Market leads to a misallocation of resources
Complete market failure definition
Occurs when the free market fails to create a market for a good/service
Partial market failure definition
Occurs when the market does not provide resources in optimal amount
(Leads to over/under consumption/production)
Public goods are non
Rivalry and excludable
Example (Radio)
Non-excludable definition
When it is not possible to prevent non-paying customers from consuming a good
Non rival definition
One person using a good or service does not diminish another person using the same good
Private goods definition
A good that is rival and excludable in consumption
Quasi-public goods definition
A good that is partially excludable and partially rivalry (Roads)
Externalities definition
Third party effects of economic transactions
MPC + MEC = MSC
private cost + external cost = social cost
MPB + MEB = MSB
Private benefit + external benefit = social benefit
Social welfare is optimised when
MSB = MSC
Merit goods and demerit goods definition
Goods that have positive / negative externalities
Positive externalities in production occur when
Action of firms have a wider benefits to society
Positive externalities in consumption occur when
Action of individuals consumers have a wider benefits to society
