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Microeconomics

Market Failure

A-Level Economics

12th

Last updated 3:54 PM on 4/6/23
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13 Terms

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Market failure
when the free market fails to achieve allocative efficiency
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Free market
a market where resources are allocated by market forces with no government intervention
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Allocative efficiency
no excesses or shortages
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Externalities
impact on a third party that goes unpaid for by the market
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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
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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
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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
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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
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Marginal
next unit of output
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Marginal Social Cost
the total cost to society incurred by the next unit of output being produced or consumed
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Marginal external cost
the total cost to a third party incurred by the next unit of output being produced or consumed
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Marginal private cost
the total cost incurred to the buyer or seller by the next unit of output being produced or consumed
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Imperfect information
a situation where one side of the market has more information than the other side of the market