Market Failures - ECON 2302

When there are positive externalities, governments intervene in the marketplace to stimulate demand toward the socially efficient level through:

- Subsides - Tax credits

Excludable

A characteristic of some goods or services whereby people can be prevented, or excluded, form consuming the good or service.

Nonexcludable

A characteristic of some goods or services whereby people cannot easily be prevented from consuming the good or service, even if they don't pay for it.

Private Market

A market in which the demand and supply curves represent the benefits and costs to only the consumers and producers in the market.

The market interaction between buyers and sellers result in _____ and _____ efficiency.

Allocative; productive

When there is _____ and _____ efficiency, the market produces the right goods in the correct amounts, using the fewest resources possible.

Allocative; productive

When there is _____ and ______ efficiency, the market produces the right goods in the correct amounts, using the fewest resources possible.

Allocative; productive

Private Good

Ant good or service that is rival and excludable.

Public Good

Any good or service that is both nonrival and nonexcludable.

Private supply is the supply of a good or service that reflects only the private _____ of its production.

Costs

Private Demand Curve

Da

Social Demand Curve

Db

Private markets fail to provide the optimal amount of some goods, such as firework displays, because:

Private companies will have difficulty getting anybody to pay for them.

A private company cannot provide _____ goods, because it does not have the ability to force people to pay for a good or service by collecting ______.

Public; taxes

_____ marginal benefit is the full benefit to society of consuming an additional unit of a good or service.

Social

An externality is:

The benefit enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service.

Externality

The benefit enjoyed by or cost imposed on a third party not directly involved in the production or consumption of a good or service.

External Marginal Benefit

The benefit of an additional unit of a good or service that is enjoyed by people other than the direct consumer of the good or service.

Private Marginal Benefit

The benefit to the consumer of an additional unit of a good or service.

Rival

The characteristic of some goods and services whereby the consumption of the good or service by one person reduces the quantity available for consumption by others. Sometimes referred to as rival in consumption.

Nonrival

The characteristic of some goods or services whereby the consumption of the good or service by one person does not diminish the amount available to someone else. Sometimes referred to as nonrival in consumption.

External Marginal Cost

The cost of an additional unit of a good or service that is imposed on people other than the producer.

Social Marginal Cost

The cost to society of producing an additional unit of a good or service; the sum of private marginal cost and external marginal cost.

Private Marginal Cost

The cost to the producer of an additional unit of a good or service.

Private Demand

The demand for a good or service that considers only the private benefits of its consumption.

Social Demand

The demand for a good or service that reflects both the private and external benefits of its consumption.

Social Marginal Benefit

The full benefit to society of consuming an additional unit of a good or service; the sum of private marginal benefit and external marginal benefit.

When externalities exist, the outcome observed may not be the most _____ outcome.

Efficient

A positive _____ is the unpaid benefit of an activity that is enjoyed by a third party.

Externality

When people cannot be prevented or excluded from consuming a good or service, then that good or service is called _____.

Nonexcludable

When some people cannot be prevented, or excluded, from consuming a good or service, that good or service is said to be:

Nonexcludable

A public good is any good or service that is ______.

Nonrivalrous and nonexcludable

When externalities exist:

Outside intervention may be able to improve the market outcome, increasing efficiency and economic surplus.

Governments may use public policy to encourage the production of goods that generate _____ externalities.

Positive

Markets characterized by either _____ or _____ externalities may result in an inefficient outcome.

Positive; negative

_____ supply is the supply of a good or service that considers only the private costs of its production.

Private

Social Supply

The supply of a good or service that reflects both the private and external costs of its production.

Private Supply

The supply of a good or service that reflects only the private costs of its production.

Negative Externality

The uncompensated cost of an activity that is imposed on a third party.

A good can be a public good and not be provided by the government. T or F.

True

Not all goods provided by the government are public goods. T or F.

True