Micro CC4

Complete market failure

When a market fails to supply any of a good which is demanded creating a missing market

Market Failure

Where resources ar inefficiently allocated due to imperfections in the working of the market mechanism

Missing Market

A market where the market mechanism fails to supply any of a good

Partial market failure

When a market for a good exists buy there is ovreproduction or underproduction of a good

Consumption externalities or external benefits of consumption

When the social costs of consumption are different from the private costs of consumption.

Positive consumption externalities

If social benefits are more than private benefits

Negative consumption externalities

When social benefits are less than private benefits

Externality or soil over effect

The difference between social costs and benefits and private costs and benefits.

When does a negative externality/ external cost exist

If net social costs ( social cost - social benefit) is greater than net private costs (private cost minus private benefit )

Marginal social and private costs and benefits

The social and private costs and benefits of the last unit either produced or consumed

Private cost and benefit

The cost of benefit of an activity to an individual economic unit such as a consumer or a firm

Production externalities

When the social costs of production are different from the private costs of production

Negative production externalities

If social costs exceed private costs

Social cost and benefits

The cost or benefits of an activity to society as a whole

Free rider

A person or organisation which receives benefits that others have paid for without making any contributions.

Non-excludability

once provided, it is impossible to prevent any economic agent from consuming the good

Non-reject ability

Once provided, it is impossible for any economic agent not to consume the good

Non-rivalry, non diminsihability pr non-exhaust ability

Consumption by one economic agent does not reduce the amount available for consumption by their

Private good

A good which possesses the characteristics of rivalry (once consumed , it cannot be consumed bu anyone else) and excludability (it is possible to prevent someone else from consuming the good)

Public good or pure public goods

A good which possesses the characteristics of non-rivalry and non- excludability

Quasi-public good or non-pure public good

A good which does not perfectly possess the characteristics of non-rivalry and non-excludability and yet which also is not perfectly rival or excludable.

Asymmetric information

Where buyers and sellers have different amounts of information, with one group having more information than the other

Imperfect information or imperfect market information

Where buys or sellers or both lack information to make an informed decision

Information failure or information gap

Where buyers or sellers or both don’t have the information that is available to make a decision

Moral hazard

When an economic agent makes a decision in their own best interest knowing that there are potential adverse risks, that if problems result, the cost will be partly borne by other economic agents

principal-agent problem

Occurs when the goals of principals, those standing to gain or lose from a decision, are different from agent ,those making decision on half of the principal such as shareholders (principal) and agents (managers) or children (principals) and parents (agents

Cap and trade schemes

Schemes which set a limit on a particular type of pollution, and then issues pollution permits to the total of that limit which can be bought and sold between firms which pollute

trade pollution permit or pollution permit

A permission issued, usually by a government, to allow a fixed amount of pollution to be created: this permit can be used by the owner or sold to another firm

Government Failure

Occurs when government intervention leads to a net welfare loss compared to the free market solution

Public choice theory

Theories about how and why public spending and taxation decisions are made

rent-seeking

The use of political power by an economic agent to manipulate the distribution of resources for their own benefit at the expense of others without creating any extra wealth for society