Definitions from chapter three...
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 condumers 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 action of others.
Third Party: Those not directly involved in making a decision.
Private Cost: The costs incurred by those taking a perticular action.
Private Benefits: The benefits directly accuring to those taking a particular action.
External Cost: The cost that the consequence of externalities to third parties.
External Benefits: The benefits that accure 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 exist where te 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 invidual consumers cannot be excluded from consumption.
Free-riders: 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 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 causes.
Subsidy: A payment, usally from government, to encourage production or consumption.
Tradable Permit: A permit that allows the owner to emit a certain amout of pollution and that, if unused or only partically used, can be solt to another polluter.
