Market Failures and Externalities

These flashcards cover key vocabulary terms and concepts related to market failures and externalities as discussed in the lecture.

Market Failure

A situation in which the allocation of goods and services is not efficient.

Externality

The uncompensated impact of one person’s actions on the well-being of a bystander.

Positive Externalities

Benefits received by others when an individual or organization produces or consumes a good or service.

Negative Externalities

Costs imposed on others when an individual or organization produces or consumes a good or service.

Internalization

The process of incorporating external costs or benefits into the decision-making process of individuals or firms.

Marginal Social Cost (MSC)

The total cost to society of producing one more unit of a good, including private costs and external costs.

Subsidy

A government payment to encourage the production or consumption of a good or service.

Public Good

A good that is nonexcludable and nonrivalrous, meaning it is available to all, and one person's use does not diminish another's.

Tragedy of the Commons

A situation where individuals use a shared resource to the extent that it becomes depleted.

Intellectual Property Rights

Legal rights that grant inventors exclusive rights to their inventions for a limited period of time.

Rivalrous Goods

Goods that cannot be consumed by more than one person at a time.

Nonexcludable Goods

Goods that are difficult or impossible to prevent people from using.