causes of market failure: negative externalities

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4 Terms

1
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define neaitve externality

defined by an external cost suffered to a third party not involved in the market transaction

they are examples of market failure because the free market fails to allocate efficiently

2
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when do they ocour

when situations such as property rights or resourse allocation is uncertain

3
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what diagram do we use to represent it

costs and benefits

4
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define welfare loss and where it is on a diagram

net welfare loss exists when the marginal cost to society is greater than the benefit. It represents a negative externality and is found between the cost lines and from the first eq