Economics Market Failure

Front 1

Profit Satisfying

Back 1

Where managers of firm make enough profit to satisfy shareholder demands instead of profit maximizing

Front 2

Managerial Theories

Back 2

Managers, with discretionary power and freedom to run the firm, maximize their own utility instead of profit

Front 3

Revenue Maximization

Back 3

Firms aim to maximize sales revenue instead of profits

Front 4

Growth Maximization

Back 4

Firms aim to maximize growth instead of profits

Front 5

Organizational Slack

Back 5

Tendency of firms in non-competitive markets to produce at higher than AC (X-Inefficiency)

Front 6

Nationalization

Back 6

Industry put under ownership and control of the state

Front 7

Privatization

Back 7

Returning state-owned corporations to private sectors, involving transfer of assets from public to private sector

Front 8

Social Efficiency / Pareto Optimality

Back 8

Achieved when no one can be made better off without someone being made worse off

Front 9

External Benefits

Back 9

Benefits from production / consumption experienced by people other than the producer / consumer (third parties)

Front 10

External Costs

Back 10

Costs from production / consumption experienced by people other than the producer / consumer (third parties)

Front 11

Private Marginal Benefit (PMB) of good

Back 11

Value the consumer places on last unit of good produced, equal to price and thus represented by demand

Front 12

Private Marginal Cost (PMC) of good

Back 12

OC of resources used up in making additional unit of good, represented by supply

Front 13

Social Marginal Benefit (SMB)

Back 13

Sum of PMB and External Benefit to represent marginal benefit on society

Front 14

Social Marginal Cost (SMC)

Back 14

Sum of SMC and External Cost to represent marginal cost on society

Front 15

Underproduction

Back 15

When in the production of the good, SMB > SMC (production can be increased to socially optimum output)

Front 16

Overproduction

Back 16

When in the production of the good, SMC > SMB (production can be decreased to socially optimum output)

Front 17

Market Failure

Back 17

Free markets, operating without government intervention, fail to deliver socially efficient allocation of resources to produce good & services

Front 18

Public Good

Back 18

Good / service with characteristic of non-excludability and non-rivalry

Front 19

Positive Externalities

Back 19

Benefits from production or consumption experienced by society but not by producers or consumers themselves

Front 20

Negative Externalities

Back 20

Costs from production or consumption experienced by society but not by producers or consumers themselves

Front 21

Merit Goods

Back 21

Goods or services deemed socially desirable by government and seen as underproduced and thus underconsumed

Front 22

Demerit Goods

Back 22

Goods or services deemed socially undesirable by government and seen as overproduced and overconsumed

Front 23

Geographical Immobility

Back 23

Where barriers to people moving from one region to another thus disallowing resources to respond to incentives to producemore goods & services demanded

Front 24

Occupational Immobility

Back 24

Mismatch of skills as labour is not transferable across industries as demanded, leading to waste of resources

Front 25

Government Failure

Back 25

Allocative efficiency is reduced following government intervention aimed to correct market failure