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Flashcards in Market failure Deck (10):
1

3 types

1. externalities
2. public goods
3. information gaps

2

externalities

spill over
third party
economy activity
outside market transaction

they are the (negative / positive) spill-over effects on a third party resulting form an economy activity outside a market transaction

3

private _

incurred by an individual or firm
result of economic activity
internal to market transaction
taken into account by price mechanism

the cost / benefit incurred by an individual or firm as a result of an economic activity which are internal to a market transaction and therefore taken into account by the price mechanism

4

government failure

when government intervention to correct market failure leads to no change or net reduction in social welfare

5

government intervention

to correct market failure so markets work more effecienly and less welfare is lost

6

negative externalities in production

1. two supply curves - bottom one is MPC
2. demand curve is MPB = MSB
3. where MPC meets MPB = qe (free market)
4. when qe meets MSC = triangle of area of welfare lost
5. y = costs, benefits / x= output

7

positive externalities in consumption

1. two demand curves - bottom one is MPB
2. supply curve is MPC = MSC
3. where MPB meets MPC= qe (free market)
4. when qe meets MSB = triangle of area of welfare lost
5. y = costs, benefits / x= output

8

public good

non excludable non rivalrous

9

GOV FAILURE

Inadequate info
Cost and opportunity cost
Administration failure
Unintened consequences
Self interest
Expertise

10

gov intervention

indirect tax
subsidies
maximum price
minimum price
tradable pollution permits
state provision of information
regulations