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Economics IGCSEPDF 42
118 pagesrevision 46932
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Market Failure:
Asituationwhere the free market (price mechanism) leads to an
allocation of scarce resources from the point of view of
optimum
Private Cost:
Thecostpaidby the individual producer or consumer in an economic transaction (e.g., cost
of raw materials for a firm, or the price paid for a cigarette by a consumer).
External BenefitPositive Externality
The benefit
third party
External CostNegative Externality
The harm or damage
is not factored into the market price
Social Cost:
The total cost
third party
Social Cost = Private Cost + External Cost
Private Benefit:
Thebenefitgained by the
individual producer or consumer
inefficient
society.
less than
not
satisfaction/utility for a consumer).
(
received bya
or
tosociety,whichincludesboththeprivate cost and the external cost.
.
(e.g., profit for a firm, or
):
(society) not involved in the transaction, which is
(
):
imposedona
(society) not involved in the transaction, which
.