1.3 market failure Flashcards
(14 cards)
Market failure
when the free market fails to allocate resources efficiently
externality
a third party effect of a transaction
Positive externality
a beneficial effect on a third party
negative externality
a harmful effect on a third party
public goods
non rival and non excludable goods e.g street lighting
private goods
rival and excludable goods
free rider problem
occurs when people benefits without paying
asymmetric information
when one party has more information or better information than another party e.g insurance companies
government intervention
government actions to correct market failiure
regulation
rules set by the government
maximum price
a price ceiling set below the equilibrium
minimum price
a price floor set above the market equilibrium
tradable pollution permits
allowances to pollute that can be bought and sold
government failiure
when government intervention worsens the situation
