Microeconomics Market Failures
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19 terms
Terms | Definitions |
|---|---|
 Demand-side market failures | happen when demand curves do not reflect consumers' full willingness to pay for a good or service |
| Supply-side market failures | occur when supply curves do not reflect the full cost of producing a good or service |
| Consumer Surplus | the difference between the max price a consumer is willing to pay for a product and the actual price that they do pay |
| Producer Surplue | the difference between the actual price a producer receives and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available |
| Productive Efficiency | achieved because competition forces orange growers to use the best technologies and combinations of resources available. Doing so minimizes the per-unit cost of the output produced |
| Allocative Efficiency | achieved because the correct quantity of oranges is produced relative to other goods and services (equilibrium) |
| Efficiency Losses/Deadweight Loss | reductions of combined consumer and producer surpluses; result from both underproduction and overproduction |
| Private Goods | goods offered for sale in stores, shops, and Internet |
| Rivalry in consumption | when one person buys and consumes a product, it is not available for another person to buy and consume |
| Excludability | sellers can keep people who do not pay for a product from obtaining its benefits |
| Public Goods | distinguished by nonrivalry and nonexcludability |
| Nonrivalry (in consumption) | one person's consumption of a good does not preclude consumption of the good by others. Everyone can simultaneously obtain the benefit from a public good such as national defense, street lighting, etc. |
| Nonexcludability | no effective way of excluding individuals from the benefit of the good once it comes into existence. Once in place, you can not exclude someone from benefiting from national defense, street lighting, etc. |
| Free-rider problem | Once a producer has provided a public good, everyone, including nonpayers, can obtain the benefit |
| Cost-benefit analysis | deciding whether to provide a particular public good and how much of it to provide |
| Marginal-cost-marginal-benefit rule | tells us which plan provides the max excess of total benefits over total costs, aka the plan that provides society with the max net benefit |
| Quasi-public goods | public goods which provide some exclusion such as education, streets, museums, etc. |
| Externality | when some of the costs or the benefits of a good or service are passed onto or "spill over to" someone other than the immediate buyer or seller; can be both + & - |
| Optimal reduction of an externality | when society's marginal cost and marginal benefit of reducing that externality are equal (MC=MB) |
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