econ market failure and market economy

Market failure

When the market mechanism fails to allocate resources efficiently.

External costs

Costs imposed on those not involved in consumption or production activities by others directly.

Private cost

Costs borne by those directly consuming or producing a product.

Private benefits

Benefits received by those directly consuming or producing a product.

Social cost

The total cost to society of an economic activity.

Social benefits

The total benefits to society of an economic activity.

Merit goods

Goods that are under-consumed and under-produced if left to market forces.

Demerit goods

Products that are more harmful to consumers than they realize or are considered harmful by the government.

Public goods

Products that are non-rival and non-excludable and need to be financed by taxation.

Private goods

Products that are both rival and excludable.

Monopoly

A single firm industry or single seller for a product.

Price fixing

When two or more firms agree to sell a product at the same price.

Free rider problem

When a person or organization receives benefits without making any contribution themselves.

Subsidy

A payment to increase production, lower price, and increase consumption of merit goods.

Non-rival

A characteristic of public goods where one person's consumption does not reduce availability for others.

Non-excludability

A characteristic of public goods where it is difficult to exclude individuals from consuming the good.

Government intervention

Measures taken by the government to correct market failures, such as providing subsidies, imposing maximum prices, or establishing publicly run firms.

Occupational mobility of labor

Measures taken by the government to promote the ability of workers to change jobs or industries, such as improving education or providing training and investment grants.