Chapter-14 Flashcards
Market failure (14 cards)
Who are third parties in economics?
Third parties are people not directly involved in producing or consuming a product.
What are social benefits?
Social benefits are the total benefits to society from an economic activity.
What are social costs?
Social costs are the total costs to society from an economic activity.
What are private benefits?
Private benefits are benefits received by those directly consuming or producing a product.
What are private costs?
Private costs are costs paid by those directly consuming or producing a product.
What are external costs?
External costs are costs imposed on others not directly involved in the consumption or production activities.
What are external benefits?
External benefits are benefits enjoyed by others who are not directly involved in the consumption or production activities.
What is socially optimum output?
Socially optimum output is the level of output where social cost equals social benefit and society’s welfare is maximised.
What are merit goods?
Merit goods are products that the government believes are under-consumed because people do not fully realise their benefits. These goods create positive externalities.
What are demerit goods?
Demerit goods are products that the government believes are over consumed because people do not fully realise how harmful they are. These goods create negative externalities.
What is a public good?
A public good is a product that is non-rival and non-excludable, meaning one person’s use does not reduce its availability to others, and no one can be excluded from using it. It is usually financed by taxation.
What is a private good?
A private good is a product that is both rival (consumption by one reduces availability for others) and excludable (people can be prevented from using it).
What is a monopoly?
A monopoly is a market situation where there is only one seller of a product or service.
What is price fixing?
Price fixing is when two or more firms agree to sell a product at the same price, which reduces competition.
