Market failure and government intervention

• Asymmetric information


  When one party knows more or has better information the other party in a transaction.
• Imperfect information


  When an economic agent doesn't have all the necessary information to make an informed decision.
• Complete market failure


  When the market is missing completely
• Partial market failure


  When a market exists but either goods are not allocated to those that receive the greatest welfare from it or firms don't produce at the lowest average total cost.
• Demerit good


  A good where production or consumption has a negative impact on the consumer
• Government intervention


  When a government actively intervenes and affects market operation.
• Market failure


  Where a market leads to a misallocation of resources.
• Merit good


  A good where production or consumption creates external benefit.
• Monopoly


  A market with just one supplier or one dominant supplier.
• Monopoly power


  The ability of a firm to be a price maker rather than a price taker, the ability to set prices.
• Negative externality


  Where external costs are passed onto third parties through the consumption/production of a good.
• Positive externality


  Where a good has positive third-party effects when consumed or produced.
• Non-excludable


  A good or service where you are unable to prevent non-paying consumers from benefiting or using the good.
• Non-rival


  Where one person's consumption of a good or service doesn't decrease the amount available for consumption by another consumer.
• Private benefit


  Benefits incurred to the individual through consumption or production.
• Private cost


  Costs incurred to the individual through consumption or production.
• Quasi-public goods


  Goods that have characteristics of both public and private goods.
• Subsidies


  Where the government gives money directly to firms so that firms can continue production.
• Market economy


  Where output and prices are determined by supply and demand.
• Price mechanism


  The way in which prices are determined through forces of supply and demand.