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24 Cards in this Set
- Front
- Back
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3 Reasons for market failure |
externalities public goods information gaps |
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Types of externality |
External costs (negative) External benefits (positive) |
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Examples of external costs of production |
Air pollution Noise pollution |
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Examples of external costs of consumption |
Passive smoking Overeating |
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Definition of externalities |
A form of market failure because market forces will not result in an efficient allocation of resources, they affect parties that are not directly involved in a transaction and may be either costs or benefits |
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What are social costs |
private costs + external costs |
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What are external costs |
social costs - private costs |
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What is welfare loss |
Welfare loss is where in a free market economy there is over production and over consumption |
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What curve is the cost |
Supply |
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What curve is the benefit |
Demand |
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Where on a graph is the socially optimal output |
Where SMC = SMB |
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What are private benefits |
Direct benefits to producers and consumers for productions and consuming a product |
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What are external benefits |
Benefits in excess of private benefits which affect third parties who are not part of the transaction |
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What are social benefits |
private benefits + external benefits |
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What are social benefits |
private benefits + external benefits |
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What are external benefits |
social benefits - private benefits |
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What is welfare gain |
A welfare gain is where in a free market economy there is under production and under consumption |
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What are public goods |
Public goods are those goods that have two key characteristics, non rivalrous and non excludable |
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What are private goods |
Private goods are those which are rivalrous and excludable |
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Examples of public goods (3) |
Street lighting Nuclear defence systems National parks |
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What is the free rider problems |
The free rider problems is the problem that once a product is provided it is impossible to prevent people from using it and therefore impossible to charge for it |
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What is symmetric information |
Symmetric information is where both parties in a transaction have the same information |
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What is asymmetric information |
Asymmetric information is where one party in a transaction has more or superior information compared to another |
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Examples of asymmetric information (5) |
Housing market Life insurance Second hand car sale Financial services High tech products |
