Market Failure

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Externalities
Costs or benefits that spill over to third parties external to a market transaction
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Marginal private cost
the cost to an individual or firm of an economic transaction
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Marginal external cost
the spillover cost to third parties of an economic transaction
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Marginal social cost
the full cost to society of an economic transaction, including private and external costs.
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Marginal private benefit
the benefit to individual or firm of an economic transaction
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Marginal external benefit
the spillover benefit to third parties of an economic transaction
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Marginal social benefit
the full benefit to society of an economic transaction, including the private and external benefits
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Ex ante
a term that refers to future events
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Ex post
a term that refers to after the event
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Merit good
A good that would be under-consumed in a free market as individuals do not fully perceive the benefits obtained from consumption e.g. education
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Failure of information/ information failure
where economic agents do not properly perceive the benefits or disadvantages of a transaction
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Partial market failure
where the free market provides a product but with a misallocation of resources.
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Demerit good
a good that would be over-consumed in a free market as it brings less overall benefit to consumers than they realise e.g. smoking, alcohol etc
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Public good
a good where the consumption of one individual does not reduce the availability of goods to others (non-rivalry) and it cannot be confined to those who pay for it (non-excludability) e.g. lamposts
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Free-rider problem
where some consumers benefit from other consumers purchasing a good, particularly with a public good e.g. NHS
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Quasi-public good
a good that has some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability e.g. national parks
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Private good
a good that is both excludable and rival in consumption
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Complete market failure
where the free market fails to provide a product at all, i.e. the case of public goods
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Occupational immobility
as patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack the necessary skills.
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Geographical immobility
where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs
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Income
a flow of earning to a factor of production over a period of time e.g. wages or salaries
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wealth
a stock of owned assets, e.g. housing property or a portfolio of shares
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Other cards in this set

Card 2

Front

the cost to an individual or firm of an economic transaction

Back

Marginal private cost

Card 3

Front

the spillover cost to third parties of an economic transaction

Back

Preview of the back of card 3

Card 4

Front

the full cost to society of an economic transaction, including private and external costs.

Back

Preview of the back of card 4

Card 5

Front

the benefit to individual or firm of an economic transaction

Back

Preview of the back of card 5
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