Market failure occurs when resources aren’t allocated in an optimal manner, meaning
that the market isn’t allocatively efficient, and community surplus isn’t maximized.
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Signs of market failure:
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Types of goods:
them and to society as a whole, that would be over-provided by the free market and so
over-consumed.
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and society as a whole, that would be under-provided by the free market and so under-
consumed.
are permits to pollute, issued by government, which sets a maximum amount of pollution
allowable. Firms may trade these permits for money.
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by the free market. They are non-excludable and non-rivalrous, making it pointless for
private individuals to provide the good themselves.
generation are met without reducing the ability to meet the needs of future generations
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Private cost: cost on you, as a consumer
Private benefit: benefit for you, as a consumer
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Marginal social cost (MSC): total cost society pays for the production of another unit of taking further action in the economy
Marginal social benefit (MSB): individuals social benefit, plus overall benefit to society from one additional unit of production
Externalities: when a production or consumption of a good has an effect on third party occurrence
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Negative Externalities: are the ‘bad’ effects that are suffered by the third party, for which
the third party doesn’t get compensated, when a good or service is produced or
consumed
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Positive Externalities: are the beneficial effects that are enjoyed by a third party, but not paid for by the third party, when a good or service is produced or consumed
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Externalities inefficiency:
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