question
What is market failure?
answer
When the market fails to allocate society's resources in the most efficient way.
question
What is allocative efficiency or social optimum?
answer
Just the right amount is produced in society's point of view (MSC=MSB, the most desirable outcome.)
question
What is private benefit?
answer
Benefit to firms and individuals from an economic activity.
question
What is private cost?
answer
The cost to firms and individuals from an economic activity.
question
What is external benefit?
answer
The benefit to third parties from an economic activity.
question
What is external cost?
answer
The cost to third parties from an economic activity.
question
What is social benefit?
answer
The benefit to society from an economic activity.
question
What is social cost?
answer
The cost to society from an economic activity.
question
What is an economic activity?
answer
The production or consumption from a good or service.
question
What is an externality?
answer
The spill-over effect of an economic activity that can either be positive or negative.
question
What is meant by the term marginal?
answer
An additional unit from a good or service that is consumed or produced.
question
What is a negative externality of consumption and examples?
answer
The negative external costs created by consumers. (e.g. cigarettes and alcohol affecting health and productivity.)
question
What is a negative externality of production and examples?
answer
The negative external costs created by producers. (e.g. paint and crude oil. that may pollute water affecting health.)
question
What is a positive externality of consumption and examples?
answer
The positive external benefits created by consumers. (e.g. health care, education)
question
What is a positive externality of production and examples?
answer
The positive external benefits created by producers. (e.g. airplane tickets, infinite battery life)
question
What are de-merit goods?
answer
Goods which are over consumed and over produced.
question
What are merit goods?
answer
Goods which are under consumed and over produced.
question
What are the government policies to decrease the consumption of de-merit goods?
answer
1. Taxation
2. Negative advertising
3. Carbon tax
4. Tradable permits
2. Negative advertising
3. Carbon tax
4. Tradable permits
question
What are the government policies to increase the consumption of merit goods?
answer
1. Subsidies
2. Positive advertising
2. Positive advertising
question
What are public goods?
answer
Goods which are non-excludable and non-rivalrous (e.g. police, street lights)
question
What are common access resources?
answer
Natural goods which are non-excludable but rivalrous (e.g. fossil fuels, river)
question
What is the free-rider problem?
answer
working on it
question
What is an asymmetric information?
answer
Situations where buyers and sellers do not have equal access to information, and usually results in under allocation of resources to the production of goods or services.
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