1.3 Market Failure

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Market Failure
When the market fails to allocate scarce resources efficiently in a way that achieves the highest total social welfare.
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Private Costs
Cost of production to the producer or the cost to the consumer of buying a product.
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Social Costs
Cost of production to society.
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Private Benefits
The benefits of consuming a good or service.
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Social Benefits
The benefits to society of someone consuming a good.
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Externalities
Third party effects arising from the general production and consumption of goods.
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Deadweight Loss
A loss of economic efficiency.
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Externalities- Government Intervention
Regulation, State provision of public goods, Taxes, Permits and Subsidies.
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Negatives of Economic Growth
Pollution, Traffic, Deforestation, Over-Population, Opportunity Cost, Bigger Wealth Gap etc
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Features of Public Goods
Non-Rivalry: avaliable for everyone. Non-Excludable: no one can be excluded from benefiting.
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Free-Rider
Someone who benefits from a good without paying for it.
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Symmetric Information
Perfect knowledge- full and free information both buyer and seller know.
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Asymmetric Information
When the buyer or seller has a limited amount of information that can change incentives to buy or sell a product, and can thus lead to market failure- e.g. cigarettes.
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Other cards in this set

Card 2

Front

Cost of production to the producer or the cost to the consumer of buying a product.

Back

Private Costs

Card 3

Front

Cost of production to society.

Back

Preview of the back of card 3

Card 4

Front

The benefits of consuming a good or service.

Back

Preview of the back of card 4

Card 5

Front

The benefits to society of someone consuming a good.

Back

Preview of the back of card 5
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