Market Failure
Market failure
market failure is a situation in which the allocation of goods and services by a free market is
not efficient.
... a situation where, in any given market, the quantity of a product demanded by consumers
does not equate to the quantity supplied by suppliers. This is a direct result of a lack of
certain economically ideal factors, which prevents equilibrium.
Consumer surplus
An economic measure of consumer satisfaction, which is calculated by analyzing the
difference between what consumers are willing to pay for a good or service relative to its
market price. A consumer surplus occurs when the consumer is willing to pay more for a
given product than the current market price.
Positive externalities
...This occurs when the consumption or production of a good causes a benefit to a third
party. For example:
When you consume education you get a private benefit. But there are also benefits to the
rest of society. E.g you are able to educate other people and therefore they benefit as a
result of your education.
A farmer who grows apple trees provides a benefit to a beekeeper. The beekeeper gets a
good source of nectar to help make more honey.
If you walk to work, it will reduce congestion and pollution, benefiting everyone else in the
city.
The effect of a well-educated labor force on the productivity of a company.
Marginal private cost
...The total cost to society as a whole for producing one further unit, or taking one further
action, in an economy. This total cost of producing one extra unit of something is not simply
the direct cost borne by the producer, but also must include the costs to the external
environment and other stakeholders.
Calculated as:
Taxes
A compulsory contribution to state revenue, levied by the government on workers' income
and business profits or added to the cost of some goods, services, and transactions
, Negative consumption externalities
A cost that is suffered by a third party as a result of an economic transaction. In a
transaction, the producer and consumer are the first and second parties, and third parties
include any individual, organisation, property owner, or resource that is indirectly affected. E
... are also referred to as spill over effects, and a N E ... is also referred to as an external
cost.
Subsidies
an amount of money given directly to firms by the government to encourage production and
consumption. A unit ... is a specific sum per unit produced which is given to the producer.
Private goods
A product that must be purchased in order to be consumed, and whose consumption by one
individual prevents another individual from consuming it. Economists refer to ... as "rivalrous"
and "excludable". If there is competition between individuals to obtain the good and if
consuming the good prevents someone else from consuming it, a good is considered a ...
Tragedy of the commons
An economic problem in which every individual tries to reap the greatest benefit from a given
resource. As the demand for the resource overwhelms the supply, every individual who
consumes an additional unit directly harms others who can no longer enjoy the benefits.
Generally, the resource of interest is easily available to all individuals.
... occurs when individuals neglect the well-being of society (or the group) in the pursuit of
personal gain. For example, if neighboring farmers increase the number of their own sheep
living on a common block of land, eventually the land will become depleted and not be able
to support the sheep, which is detrimental to all.
Marginal social cost
The total cost to society as a whole for producing one further unit, or taking one further
action, in an economy. This total cost of producing one extra unit of something is not simply
the direct cost borne by the producer, but also must include the costs to the external
environment and other stakeholders.
Producer surplus
...An economic measure of the difference between the amount that a producer of a good
receives and the minimum amount that he or she would be willing to accept for the good.
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