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Market Failure - theme 1
Terms in this set (29)
the misallocation of resources that result from the price mechanism when left alone
Misallocation of resources
Refers to the inefficient use of resources. In other words, resources are not used in the best possible way, which means the market is not in equilibrium.
The additional consequences, positive or negative, that a transaction entails.
Direct cost of production to the producer.
Cost to the third party of production or consumption of a good or service; ignored by the market.
External cost and private cost combined.
Direct benefit or utility of consumption to the consumer.
Benefit to the third party of production or consumption of a good or service; ignored by the market.
External benefit and private benefit combined.
Marginal private cost
Private cost of producing one more unit of a good to the producer.
Marginal private benefit
Private benefit of consuming one more unit of a good to the consumer.
Marginal social cost
The cost of producing one more unit of a good to the society.
Marginal social benefit
The benefit of consuming one more unit of a good to the society.
Gaining understanding on effects of producing or consuming additional units of goods, as opposed to the overall production or consumption of all goods.
Where marginal private benefit is the same as the marginal private cost of producing and consuming a good or service.
Social optimal equilibrium
Where the marginal social benefit is the same as the marginal social cost of producing and consuming a good or service.
Loss in efficiency that results from the market being in disequilibrium.
Gain in efficiency as the market moves towards equilibrium.
All the stakeholders in an economy.
The measures that a government undertakes to correct market failures.
Goods that are non-excludable and non-rivalrous.
Goods that can be used by only one consumer after he/she has paid for it.
Goods that can be used by many consumers at one time.
Goods that can even be used by consumers who don't pay for it.
The problem that public goods create because some people use the goods without paying for them.
When consumers and producers know the same amount of information regarding a good or service.
When either the consumer or the producer knows more about a good or service.
A product that is under-consumed perhaps due to lack of information about the benefits. Often government will provide these goods for free to increase consumption.
A product that is over-consumed if the market is left alone. Governments may tax or regulate this type of product to reduce consumption.
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