Market Failure

Front 1

Market Failure

Back 1

When market forces (demand and supply) alone fail to allocate scarce resources efficiently, resulting in the good either being produce or consumed too much or too little.

Front 2

Negative externalities

Back 2

Causes the social cost of production to exceed the private cost (eg. environmental damage)

Front 3

Positive externalities

Back 3

Causes the social benefit of consumption to exceed the price benefit (eg. provision of health care and education)

Front 4

Imperfect information

Back 4

This means merit goods are under-produced while demerit goods are over-produced or over-consumed.

Front 5

Allocative efficiency

Back 5

Exists when 'just the right amount' from society's point of view has been produced. This is when the marginal social benefit (MSB) is equal to the marginal social cost (MSC).

Front 6

Productive efficiency

Back 6

When production takes place with the minimum average costs, implying that production is taking place with minimal resource waste.

Front 7

Marginal Private Costs (MPC)

Back 7

the costs of producing and extra unit of output. Includes wages, cost of raw materials etc.

Front 8

Marginal Social Cost (MSC)

Back 8

The costs of producing and extra unit of output that are borne by society. These reflect the value of all resources that are sacrificed for the production process.

Front 9

Marginals Private Benefits (MPB)

Back 9

These are the benefits that the individual enjoys from the consumption of one extra good.

Front 10

Marginal Social Benefits (MSB)

Back 10

These are the benefits that society enjoys from each extra unit consumed.

Front 11

Public Good

Back 11

This means a good is non-excludable meaning it can exclude no one from consuming it and the consumption is non-rival (non-diminishable) meaning ones consumption of a good does not decrease the amount available for others (e.g. news broadcast and radio)D

Front 12

Demerit good

Back 12

The consumption of this good results in negative externalities to society.

Front 13

Merit good

Back 13

The consumption of this good results in positive externalities to society.

Front 14

Technical efficiency

Back 14

This is the effectiveness with which a given set of inputs is used to produce output. A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labor, capital and technology.

Front 15

Static efficiency

Back 15

This is concerned with the most efficient combination of resources at a given point in time.

Front 16

Dynamic efficiency

Back 16

Dynamic efficiency is concerned with the productive efficiency of a firm over a period of time.