Econ 200 chap. ?

Quasi public goods

-Education or highways. -Government provides access to their goods at a reduced cost to encourage their production and consumption and to increase the external benefits to society.

When market failure arises, public good that has net benefits for society fails to be produced

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Market failures can be of two types:

1) Demand Side market failures, 2) Supply Side market failures

Private good

:Such as a soft drink, characterized by rivalry and excludability

Allocative efficiency

Achieved at the equilibrium quantity of output because marginal benefits equals marginal costs, maximum willingness to pay equals minimum acceptable price, and the combination of the consumer and producer surplus is at a maximum.

Productive efficiency:

Achieved because production costs are minimized at each quantity level of output.

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When markets are economically efficient, the demand curve in the market must include the full willingness of consumers to pay for the product and the supply curve must capture the full cost of producing the product.

Consumer surplus

Difference between the maximum price consumers are willing to pay for a product and the actual equilibrim price.

Producer surplus

Difference between the minimum price producers are willing to accept for a product and the actual equilibrium price received.

Private goods lead to:

Free Rider problem, where once a producer provides a public good everyone including non payers can receive the benefits.

Externalities

Is a spillover from a market transaction to a third party that did not purchase the product. Can be positive or negative

Negative Externaliities

Occur when a the cost for the product does not reflect the full cost of producing it from societies perspective. -Ex, pollution

Market Failures

Occurs when competitive markets do not allocate the scarce resources to their most valued or best use.

Demand Side market failures

Occurs when the consumers full willingness to pay for a good or service is not fully captured in the demand for the good or service. -For example, not much incentive to pay to view outdoor fireworks because you can usually still see them either way

Positive Externalities

Outcomes that benefit third parties without these parties paying for the benefits -Ex, health immunizations and education

The equilibrium quantity shown by the intersection of demand and supply curves reflects economic efficiency through:

Productive efficiency and allocative efficiency

Supply Side market failures

Results from a situation where a business firm does not have to pay the full cost of producing a product -For example, a firm may not have to fully pay for the emissions it produces into the atmosphere.

Private good:

Such as self defense, characterized by nonrivalry and nonexcludability.