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Flashcards in Chapter 10 Government Intervention Deck (17)
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Market failure

The free market fails to produce quantities of gds s + s's that people want at prices reflecting their marginal utilities and occurs when freely functioning markets fails to deliver an efficient allocation of resources


Complete market failure

Occurs when the market simply does not supply a product at all, resulting in a missing market . E.g. Public gds.


Partial market failure

Is where the market exists but contributes to resource misallocation. E.g. ,meritgoods


Negative externalities

Costs imposed on third parties not involved with the consumption or production of a good. SC> PC


Positive externalities

A positive spillover effect to third parties of a market transaction. SB > PB


Pure public goods

Are non rival and non excludable in consumption


Quasi public good

A good that has some of the qualities of a public good but does not fully possess the two required characteristics of non rival and non excludability


Private good

A good that is bro excludable and rival in consumption


Merit good

A merit good is a good or service for which the SB> PB of consumption. A merit good would be under consumer in a free market as individuals do not perceive the benefits obtained from consumption


Demerit good

A good that would be over consumed in a free market as it brings less overall benefit to consumers than they realise.



Third party spillover effects arising from production or consumption of goods and services for which no appropriate compensation is paid for.


Cost benefit analysis

Is a technique that attempts to take account of all the costs and benefits of an activity. In other word it rise to quantify both PC and PB as well as indenting hint EC and EB. Cab tends to be used for large, public sector projects, it may be used to rank projects alongside the, real Monetary cost to the govt; govt faces the problem of an opportunity cost and is unable to put kidney into all projects due to the need to keep low borrowing requirements,


Marginal private cost

The cost to an individual or firm of an economic transaction


Marginal external cost

The spillover cost to third parties of an economic transaction


Marginal social cost

The full cost to society of an economic transaction, including private and external costs.


Marginal private benefit

The benefit to an individual or a firm of an economic transaction


Marginal external benefit

The spillover benefit to third parties of an economic transaction