1.3 Flashcards
(22 cards)
Cost benefit analysis
Method used by gov and private companies to decide whether a given project should go ahead
Market failure
When price mechanism/ market fails to allocate resources effectively
Private cost
Cost to individual of consuming a good or service
External cost
Disadvantages to a third party not directly involved in a transaction
Social costs
Total costs to a country of adding both private and external costs
Private benefit
Advantages gained by individual for consuming a given good or service
External benefits
Advantages Gained by a third party because of society’s consumption of a good or service
Social benefits
Total benefits axing private and external
Negative externalities
Costs suffered by a third party as result of economic transaction
EG pollution from cars and factories
Merit goods
Goods or service gov feels people will underconsume, under provided by private sector
Public goods
Good or service provided without profit to all members of society often by gov . Private sector would not produce
Demerit goods
Goods or services whose consumption is unhealthy or over consumed
Information gap
Buyer ir seller doesn’t have access to all relevant information to make a rational decision
non- excludability
people cannot be prevented from using the good
non-rivalry
one person using the good doesn’t reduce availability for others
quasi-public good
quasi-public good is a type of good or service that has characteristics of both public and private goods. These goods are often provided or regulated by the government because they benefit society, but they are not purely public goods in the economic sense.
non rivalry + excludability
externalities
cost of benefit third party receives from economic transaction outside of market mechanism
free rider principle
people who don’t pay for public goods still get the benefits so the private sector under provides as they cant make profit
incidence of tax
tax burden on the tax payer
market forces
forces in a free market that act to reduce prices when there is excess supply and increase when there’s excess demand
private goods
goods that are rivalry and excudable
state provision
gov provides merit or public goods which are underprovided in free market
