chapter 14 - market failure Flashcards
definition of:
market failure
occurs when market forces of demand and supply fails to allocate resources efficiently and causes external costs or external benefits
definition of:
private costs
production and consumption are the actual costs of a firm, individual or gov
definition of:
external costs
negative side effects of production and consumption incurred by third parties for which no compensation is paid
definition of:
external benefits
positive side effects experienced by third parties in which no money is paid for the beneficiary
definition of:
social costs
true costs of consumption or product to society; total sum of private and external costs
definition of:
private benefits
benefits of production and consumption enjoyed by a firm, individual or gov
definition of:
social benefit
true benefits of consumption or production; sum of private and external benefits
causes and consequences of market failure
public goods merit goods demerit goods abuse of monopoly factor immobility
definition of:
public good
goods and services that are non excludable and non rivalrous, which are cause of market failure due to the lack of profit motive to produce them
definition of:
merit good
goods and services when consumed create positive spillover effects in an economy; under- provided and under-consumed without gov intervention
definition of:
demerit good
goods and services when consumed create negative spillover effects in an economy; over-produced and over-consumed without gov intervention
abuse of monopoly power
without gov control, firms can exploit market power to charge high prices and reduce supply
factor immobility
occurs when it’s difficult for factors of production to move or switch between different uses or locations
- occupational immobility
- geographical immobility
