Economics Chapter 5: Market Failures: Public Goods and Externalities – Flashcards
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happen when demand curves do not reflect consumers' full willingness to pay for a good or service.
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demand side market failures
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occur when supply curves do not reflect the full cost of producing a good or service
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supply side market failures
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the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
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consumer surplus
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The amount a seller is paid for a good minus the seller's cost of providing it
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producer surplus
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the situation in which a good or service is produced at the lowest possible cost
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productive efficiency
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term for resources being deployed to produce just the right amount of each product to satisfy society's wants
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allocative efficiency
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the fall in total surplus that results from a market distortion, such as a tax
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deadweight loss
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reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product
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efficiency loss
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Goods that are both excludable and rival in consumption
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private goods
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when on person buys and consumes a product, that product is not available for another person to buy and consume
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rivalry
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The property of a good whereby a person can be prevented from using it
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excludability
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Goods that are neither excludable nor rival in consumption
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public goods
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the problem faced by interest groups when citizens can reap the benefits of interest group action without actually joining, participating in, or contributing money to such groups.
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free-rider problem
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economic model that compares the marginal costs and marginal benefits of a decision
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cost-benefit analysis
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an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
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externality
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They are the "bad" effects that are suffered by a third party when a good or service is produced or consumed; causes of supply-side market failures
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negative externalities
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benefits created by a public good that are shared by the primary consumer of the good and by society more generally; causes of demand-side market failures
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positive externalities
