Econ Paper 3 Market Failure

Market failure occurs when the market fails to allocate resources efficiently, where too much or too little of the goods or services are produced and consumed from the point of view of what is socially most desirable.

An allocation of resources that results in producing the combination and quantity of goods and services most preferred by consumers. The condition for allocative efficiency is given by MSB=MSC

Goods that are held to be desirable for consumers, but which are under provided by the market.

Occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions and whose interests are not taken into consideration.

Goods that are considered to be undesirable for consumers and are over provided by the market.

A negative externality caused by production where marginal social costs (MSC) are greater than marginal private costs (MSP).

A positive externality caused by production activities, leading to a situation where marginal social costs (MSC) are less than marginal private costs (MPC).

A positive externality cause by consumption activities, leading to a situation where marginal social benefits (MSB) are greater than marginal private benefits (MPB).

A negative externality caused by consumption activities, leading to a situation where marginal social benefits (MSB) are less than marginal private benefits (MPB).

Sustainability is the development which meets the needs of the present without compromising the needs of the future.

Sustainable development is the development which meets the needs of the present without compromising the needs of the future.

Permits that can be issued to firms by a government authority or an international body that can be traded in a market, the objective being to limit the total amount of pollutants emitted by the firms.

Refers to loss of a portion of social surplus that arises when marginal social benefits are not equal to marginal social costs.

A tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the problem of climate change.

Indirect taxes designed to correct negative externalities of production or consumption.

An amount of money paid by the government to firms.