Market Failure Definitions

Question	Answer
Market Failure	when the market forces do not result in the efficient allocation of resources
Market forces	the forces of demand and supply
Externalities	affect parties that are not directly involved in a transaction and may be either costs or benefits
Private costs	direct costs to producers and consumers for producing and consuming a product
External costs	the costs in excess of private costs that affect third parties who are not part of the transaction
Social costs	the sum of private costs and external costs
Private benefits	direct benefits to producers and consumers for producing and consuming a product
External benefits	benefits in excess of private benefits which affect third parties who are not part of the transaction
Social benefits	the sum of private benefits and external benefits
Public goodsg	goods that are non-rivalrous and non-excludable
Free rider problem	the problem that once a product is provided it is impossible to prevent people from using it and, therefore, impossible to charge for it
Symmetric information	where both parties in a transaction have the same information
Asymmetric information	where one party in a transaction has more or superior information compared to another

Resource summary

	Created by Jesse McNab over 7 years ago