41822
| Question | Answer |
| Market failure: | Where the free market mechanism fails to achieve economic efficiency. |
| Productive efficiency: | Where production takes place using the least amount of scarce resources. |
| Economic efficiency: | Where both allocative and productive efficiency are achieved. |
| Inefficiency: | Any situation where economic efficiency is not achieved. |
| Free market mechanism: | The system by which the market forces of demand and supply determine prices and the decisions made by consumers and firms. |
| Information failure: | A lack of information resulting in consumers and producers making decisions that do not maximise welfare. |
| Asymmetric information: | Information not equally shared between two parties. |
| Externality: | An effect whereby those not directly involved in taking a decision are affected by the actions of others. |
| Third party: | Those not directly involved in making a decision. |
| Private costs: | The costs incurred by those taking a particular action. |
| Private benefits: | The benefits directly accruing to those taking a particular action. |
| External costs: | The costs that are the consequence of externalities to third parties. |
| External benefits: | The benefits that accrue as a consequence of externalities to third parties. |
| Social costs: | The total costs of a particular action. |
| Social benefits: | The total benefits of a particular action. |
| Negative externality: | This exists where the social cost of an activity is greater than the private cost. |
| Positive externality: | This exists where the social benefit of an activity exceeds the private benefit. |
| Merit goods: | These have more private benefits than their consumers actually realise. |
| Demerit goods: | Their consumption is more harmful than is actually realised. |
| Public goods: | Goods that are collectively consumed and have the characteristics of non-excludability and non-rivalry. |
| Non-excludability: | Situation existing where individual consumers cannot be excluded from consumption. |
| Free rider: | Someone who directly benefits from the consumption of a public good but who does not contribute towards its provision. |
| Non-rivalry: | Situation existing where consumption by one person does not affect the consumption of all others. |
| Quasi-public goods: | Goods having some but not all of the characteristics of a public good. |
| Direct tax: | One that taxes the income of people and firms and that cannot be avoided. |
| Indirect tax: | A tax levied on goods and services. |
| Polluter pays principle: | Any measure, such as a green tax, whereby the polluter pays explicitly for the pollution caused. |
| Subsidy: | A payment, usually from government, to encourage production or consumption. |
| Tradable permit: | A permit that allows the owner to emit a certain amount of pollution and that, if unused or only partially used, can be sold to another polluter. |
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