Unit 1 - Chapter 10 (Chapter 9) Flashcards
Private goods, public goods and externalities. Introducing market failures (9)
Market failure
A market completely failing to provide a good or service, or providing the wrong quantity i.e. a quantity that leads to a misallocation of resources in the economy.
Equity
Fairness or justness
Private good
A good, that is excludable and rival E.G. an orange
Public good
A good, that is non-excludable and non-rival E.G. a radio
Free-rider
Somebody who benefits from a good or service without paying for it.
A good
Yields utility
A bad
Yields disutility
Externality
A public good, in the case of an external benefit, or a public bad, in the case of an external cost, that is ‘dumped’ on the third parties outside the market.
The margin
Refers to the last unit undertaken of an activity.
Marginal benefit
The benefit resulting from the last unit of a good.
Marginal cost
The cost of the last unit of a good.
Social cost
The total cost of an activity, including the external cost as well as the private cost.
Private benefit maximisation
Occurs when MPC = MPB
Social benefit
The total benefit of an activity, including the external benefit as well as the private benefit.
Social benefit maximisation
Occurs when MSC = MSB
