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3 Cards in this Set
- Front
- Back
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Market failure |
a situation where the free market mechanism does not lead to an optimal allocation of resources e.g. where there is a divergence between marginal social benefit and marginal social cost |
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Allocative inefficiency |
a situation where optimal allocation of resources is not achieved (i.e. there is over or under production and/or consumption in comparison to the socially optimal level) |
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Socially optimal resource allocation |
resources are allocated so that the market reaches equilibrium where the social cost of production/consumption EQUALS the social benefit of production/consumption (also known as social efficiency). In any market there will be a socially optimal price and quantity. |
