LS17 - Market Failure And Externalities

Question 1

Market failure

Answer 1

Where too much or too little of a good is produced and/or consumed compared to the socially optimal level of output, or when the price mechanism leads to an inefficient allocation of resources

Question 2

External cost

Answer 2

Cost to a third party not involved in the making, buying/selling and consumption of a good or service

Question 3

External benefit

Answer 3

Benefit to a third party not involved in the making, buying/selling and consumption of a good or service

Question 4

Difference between private and external cost

Answer 4

Private affects those who are apart of the transaction, external costs affect the 3rd party