Micro 11 Flashcards
What is market failure ?
when the market is unable to efficiently allocate scarce resources to meet the needs of society
What is complete market failure?
occurs when there is no market whatsoever i.e. a missing market. Goods and services have to be provided by the government, otherwise they would not exist at all
What is partial market failure ?
occurs when a market exists but there is a misallocation of resources. Merit goods tend to be underprovided, whereas demerit goods tend to be overprovided
What are externalities ?
are the costs and benefits to a third party created by economic agents when undertaking their activities.
What are negative externalities ?
costs to the third party that are not included in the price of the economic activity.
What are positive externalities ?
are benefits to a third party that are not included in the price of the economic activity.
WHat is supply MPC?
MPC is the additional cost of producing an additional unit of a good or service. If the price of an additional unit pays for the cost of producing the extra unit then the firm will supply it
What is demand MPB ?
MPB is the additional amount of satisfaction that a consumer gains from an additional unit of a good or service
What are public goods ?
ones that their use by one individual does not stop others from using it and its consumption does not reduce the amount available for consumption by others.
How might public good be described ?
non-rival and non-excludable
What is non-rival ?
the consumption of the good does not reduce the amount available for consumption by others
What is non-excludable?
once provided it is impossible to stop other individuals from using them
What are pure public goods ?
ones where it is impossible to exclude someone from consuming it if they are unwilling to pay for its use e.g. the air we breathe.
What are private goods ?
ones that their use by one individual stops others from using it and its consumption reduces the amount available for consumption by others.
How might private goods be described ?
are characterised as being rival and excludable.
