A situation in which the free market mechanism does not lead to an optimal allocation of resources.
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Externality
A cost or a benefit that is external to a market transaction, and is thus not reflected in market prices.
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Consumption externality
An externality that affects the consumption side of a market, which may be negative or positive.
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Production Externality
An externality that affects the production side of a market, which may be either positive or negative.
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Private cost
A cost incurred by an individual(firm or consumer) as part of its production or other economic activities.
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External cost
A cost associated with an individuals (a firm or households) production or other economic activites which is borne by a third party and is not reflected in market prices.
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Social cost
private plus external cost.
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Marginal social cost
The cost to society of producing an extra unit of a good.
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Other cards in this set
Card 2
Front
A cost or a benefit that is external to a market transaction, and is thus not reflected in market prices.
Back
Externality
Card 3
Front
An externality that affects the consumption side of a market, which may be negative or positive.
Back
Card 4
Front
An externality that affects the production side of a market, which may be either positive or negative.
Back
Card 5
Front
A cost incurred by an individual(firm or consumer) as part of its production or other economic activities.
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