Market failure
where resources are inefficiently allocated dueto imperfections in the working
of the market and a net welfareloss
ex traffic light free market will not provide them so government has to interfere
ex negative1positive externality information failure publicprivate1quasigood monopoly labourimmobili
inequality
Externalities Spillower Effect
cost or benefit on third parties who are not involved in economic activity
Positive externality
benefit to a third party resulting from a transaction between a buyer
and a seller 1st and 2ndparty Prien npc
5nsc
Underproductionconsumption na
r tog DmsBmpB
Negative externality ago Quantity
cost to third party from a
a transaction between a buyer and seller
1st and 2ndparty ex of consumption or production
Marginal g MSC
Price n e earnw 9 MPB Marginal Private Benefit
s µpc
a MPC Marginal Private Cost
pz
qPi
fa
Meeks
overproductionKonsumption
causing external cost
MSC MarginalSocial Cost
I l
l l DMPB MSB Q2 social optimal level
1 I Qi freemarket equilibrium
Q2Qa Quantity
Private Benefit External Benefit Social Benefit
total benefit to society
Private Cost External cost Social Cost
total cost to society
Private cost1benefit are the costs1benefits to the individual participating in the
economic activity Demand curve Private benefit
Supply curve private cost
economic
Social costs1benefits are the costs1benefits of the activity to society as a whole
External costs1benefit are the costs1benefits to a third party not involved
Externality in economic activity
Private good
good at which consumption of one person will lead to no consumption by another
Rivalry and excludible
ex Chocolate bar
Public goods
Good provided by government
where resources are inefficiently allocated dueto imperfections in the working
of the market and a net welfareloss
ex traffic light free market will not provide them so government has to interfere
ex negative1positive externality information failure publicprivate1quasigood monopoly labourimmobili
inequality
Externalities Spillower Effect
cost or benefit on third parties who are not involved in economic activity
Positive externality
benefit to a third party resulting from a transaction between a buyer
and a seller 1st and 2ndparty Prien npc
5nsc
Underproductionconsumption na
r tog DmsBmpB
Negative externality ago Quantity
cost to third party from a
a transaction between a buyer and seller
1st and 2ndparty ex of consumption or production
Marginal g MSC
Price n e earnw 9 MPB Marginal Private Benefit
s µpc
a MPC Marginal Private Cost
pz
qPi
fa
Meeks
overproductionKonsumption
causing external cost
MSC MarginalSocial Cost
I l
l l DMPB MSB Q2 social optimal level
1 I Qi freemarket equilibrium
Q2Qa Quantity
Private Benefit External Benefit Social Benefit
total benefit to society
Private Cost External cost Social Cost
total cost to society
Private cost1benefit are the costs1benefits to the individual participating in the
economic activity Demand curve Private benefit
Supply curve private cost
economic
Social costs1benefits are the costs1benefits of the activity to society as a whole
External costs1benefit are the costs1benefits to a third party not involved
Externality in economic activity
Private good
good at which consumption of one person will lead to no consumption by another
Rivalry and excludible
ex Chocolate bar
Public goods
Good provided by government
