Unit 12 Flashcards
What is market failure?
This refers to the failure of the market to allocate resources in an efficient way
It occurs when transactions by people have an effect on others
What is an externality?
This is the cost or benefit of a choice that is imposed on someone who was not involved in the choice
What is the marginal social cost?
It’s the sum of the Marginal Private and Marginal external costs
What are the three scenarios in which a marginal social cost is solved?
- The affected pay the producers to reduce production
- There is single ownership of property
- Polluter pays
What did Coase say the obstacles to bargaining were?
- Impediments to collective action
- Missing information
- Difficulty enforcing bargain
- Limited funds
What did Alfred Pigou suggest?
That taxes and subsidies ensure that individual interests should serve those of society and that they are forced to pay off their actions on society
What is the solution to an external benefit?
To provide a subsidy
What are the four ways that goods can be characterized?
- Non Rival
- Rival
- Excludable
- Non excludable
Why are public goods not provisioned by firms?
They have a zero marginal cost of producing them
They are non excludable so no price can be charged
