ECON102 Chapter Notes - Chapter 1.4: Market Failure, Externality, Deadweight Loss

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Market failure: the failure for the market to successfully achieve allocative efficiency, because there is an over or under provision of a good. So community surplus is not maximized and the socially desirable level of output is not achieved. Marginal private cost (mpc): private supply curve that is based on the firm"s costs of production. Marginal private benefit (mpb): private demand curve that is based on the utility or benefits to consumers. Marginal social benefit (msb) = mpb+/-external benefit to third party. Externalities: occur when the production or consumption of a good or service has an effect upon a third party. Negative externalities of production: occur when the production of a good or service creates external costs that are damaging to third parties (msc>mpc). Examples: carbon emissions from factories, factory waste disposal, noise pollution, fossil fuels. So the firm is only paying the private costs a q.

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