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Demand side market failures |
Occurs when demand curves do not reflect a consumer’s willingness to pay for a good or service |
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When do demand side failures occur? |
When it is impossible to charge consumers for a product ( Fireworks display) Some can enjoy benefit without paying |
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Supply side market failures |
Occurs when supply curves do not reflect the full cost of producing a good or service |
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When do supply side market failures occur? |
When the firm does not have to pay full cost for producing a good External costs are not reflected in curve |
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Consumer surplus |
Difference between what a consumer is willing to pay for a product and what the consumer actually pays Benefit from paying less than the max price |
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Producer surplus |
Difference between what the price a producer receives versus and the minimum price they would accept |
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Productive efficiency |
Minimizes the per-unit cost of the output produced |
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Quasi public goods |
Public goods in which exclusion would be possible |
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Reallocation process |
Government must free up public and quasi-public goods by reducing private demand for them It does this by: levying taxes on individuals and businesses Takes this money and spends it on the production of goods |
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Externality |
Occurs when some of the costs/benefits of a good or service are passed onto someone other than the original buyer or seller |
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Positive externality |
Too little is produced Demand side market failure |
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Negative externality |
Too much is produced Supply side market failure |
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Government correction negative externalities |
Legislation, taxes |
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Government correction positive externalities |
Subsidies Government provision |
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Case thereom |
Price sector bargaining can solve externality problem |
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