Individuals, firms, markets and market failure Key Terms

Market Failure

A situation in which the allocation of goods and services is not efficient, often leading to a net social welfare loss.

Externality

A cost or benefit that affects a party who did not choose to incur that cost or benefit.

Public Goods

Goods that are non-excludable and non-rivalrous, leading to the free-rider problem.

Private Goods

Goods that are both excludable and rivalrous, meaning consumption by one individual reduces availability for others.

Externality

A side effect or consequence of an economic activity that affects other parties without being reflected in the costs of the goods or services involved.

Market Failure

A situation in which the allocation of goods and services is not efficient, often due to externalities, public goods, or information asymmetries.

Merit Goods

Goods that are deemed beneficial for individuals and society, leading to positive externalities, but are often under-consumed in a free market.

Demerit Goods

Goods that are considered harmful to individuals and society, leading to negative externalities, and are often over-consumed in a free market.

Monopoly

A market structure where a single seller dominates the market, often leading to higher prices and reduced output.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they are available for everyone to use without diminishing their availability.

Antitrust laws

Legislation enacted to prevent anti-competitive practices and promote fair competition in the marketplace.

Market power

The ability of a firm to influence the price of a product or service in the market.

Market Failure

A situation in which the allocation of goods and services is not efficient, often leading to a net social welfare loss.

Deregulation

The process of removing or reducing government rules controlling how businesses can operate, aimed at increasing competition.

Subsidy

A financial assistance provided by the government to support a particular industry or economic sector, aimed at promoting economic activity.

Market Failure

A situation in which the allocation of goods and services is not efficient, often justifying government intervention.

Government Failure

A situation where government intervention in the economy causes an inefficient allocation of resources, leading to a net loss in economic welfare.

Information Asymmetry

A condition in which one party in a transaction has more or better information than the other, potentially leading to market failures.