Market failure definitions

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  • Created by: Pdyer10
  • Created on: 29-03-17 09:58
Private costs
The costs of production which are borne by the business which produces the product. For example, private costs will include wages and salaries, interest and the cost of raw materials and component as well as any research and development.
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External costs (negative externalities)
Occur when some of the costs of production are borne by a 3rd party not involved with the production or consumption of the good.
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Social costs
ALL the costs, bother private and external that arise from the production process.
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Private benefits
The benefits which the individual buyer and seller of a product, for example enjoyment/satisfaction a person might derive from purchasing a meal at a restaurant.
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External benefits (positive externalities)
These are benefits that are accrued by 3rd parties. they may arise from production or consumption.
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Social benefit
ALL the benefits, both private and external that arise from the consumption of a good.
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Costs formula
Private costs+external costs=social costs.
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Benefits formula
Private benefits+external benefits=social benefits.
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Marginal private cost
The addition to private costs from one extra unit of output.
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Why does the MPC curve slope upwards?
Diminishing marginal returns.
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Marginal private benefit
The addition to private benefits from one extra unit of output.
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Why does the MPB curve slope downward?
Diminishing marginal utility.
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Market failure
Occurs when the price mechanism fails to allocate scarce resources efficiently or when the operation of market forces lead to a net social welfare loss.
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Complete market failure
Occurs when the market simply does not suppl products at all- we see 'missing markets'
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Partial market failure
Occurs when the market does actually function but it produces either the wrong quantity of a product or at the wrong price.
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Other cards in this set

Card 2

Front

Occur when some of the costs of production are borne by a 3rd party not involved with the production or consumption of the good.

Back

External costs (negative externalities)

Card 3

Front

ALL the costs, bother private and external that arise from the production process.

Back

Preview of the back of card 3

Card 4

Front

The benefits which the individual buyer and seller of a product, for example enjoyment/satisfaction a person might derive from purchasing a meal at a restaurant.

Back

Preview of the back of card 4

Card 5

Front

These are benefits that are accrued by 3rd parties. they may arise from production or consumption.

Back

Preview of the back of card 5
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