Market Failure

Market Failure - IB Economics Drogaris Microeconomics End...

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IB Economics – Drogaris Microeconomics – End of Unit Gaith Kalai Market Failures Page 164; 1-3 In any given practical Economic transaction, the cause and effect of the dealings often extend beyond “buying and selling” (ie. Supply and demand) into social or political realms. This is called Market Failure: the failure of the Market to respect its set boundaries when a transaction takes place; or more formally: a situation where a market does not efficiently allocate resources to achieve the greatest possible good. In economics, an externality of an economic transaction is an impact on a third party that is not directly involved in the transaction . In cases like such, real prices do not reflect the full costs or benefits in production or consumption of a product or service (also under Opportunity Costs). An advantageous impact is considered to be an external benefit or positive externality, while a disadvantageous impact is called an external cost or negative externality. Producers and
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This document was uploaded on 10/26/2011 for the course PLIR 2050 at UVA.

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Market Failure - IB Economics Drogaris Microeconomics End...

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