Flashcards in Chapter 10 Government Intervention Deck (17)
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
Costs imposed on third parties not involved with the consumption or production of a good. SC> PC
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
A good that is bro excludable and rival in consumption
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
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