Studied by 0 peopleMarket failure
when the free market fails to achieve allocative efficiency
Free market
a market where resources are allocated by market forces with no government intervention
Allocative efficiency
no excesses or shortages
Externalities
impact on a third party that goes unpaid for by the market
Negative externalities in production
negative impact on a third party that goes unpaid for by the market as a result of production of a good
Negative externalities in consumption
negative impact on a third party that goes unpaid for by the market as a result of consumption of a good
Positive externalities in production
positive impact on a third party that goes unpaid for by the market as a result of production of a good
positive externalities in consumption
positive impact on a third party that goes unpaid for by the market as a result of consumption of a good
Marginal
next unit of output
Marginal Social Cost
the total cost to society incurred by the next unit of output being produced or consumed
Marginal external cost
the total cost to a third party incurred by the next unit of output being produced or consumed
Marginal private cost
the total cost incurred to the buyer or seller by the next unit of output being produced or consumed
Imperfect information
a situation where one side of the market has more information than the other side of the market
Note
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