Microeconomics

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What is market failure?
A situation in which the free market mechanism does not lead to an optimal allocation of resources e.g. when there is divergence between marginal social benefit and marginal social cost.
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What is marginal social cost?
The cost to society of producing an extra unit of a good
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What is an externality?
A cost or benefit that is external to a market transaction, and is thus not reflected in market prices and passed on to a third party.
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What is a third-party?
Individuals or firms that have no input into the market transaction but are affected by its outcome.
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MSC>MPC causes what?
Negative Production Externality
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MPB>MSB causes what?
Negative Consumption Externality
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MSB>MPB causes what?
Positive Consumption Externality
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MPC>MSC
Positive Production Externality
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The 'free-rider problem' is associated with what type of good?
Public goods
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What goods are non-rival and excludable?
Club goods
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What goods are rival and non-excludable?
Common goods
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Other cards in this set

Card 2

Front

What is marginal social cost?

Back

The cost to society of producing an extra unit of a good

Card 3

Front

What is an externality?

Back

Preview of the front of card 3

Card 4

Front

What is a third-party?

Back

Preview of the front of card 4

Card 5

Front

MSC>MPC causes what?

Back

Preview of the front of card 5
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