The impact on a third party as a result of a decision or action made by another is called an .

 external cost  external benefit  externality 

represents the total benefit to a society, measured the private marginal benefit of an action plus the external marginal benefit.

 External benefit  Externality  Social benefit 

represents the total cost to society, measured by private marginal cost plus the external marginal cost. 

Social cost  External cost  Externality 

Social efficiency occurs when the resources in an economy are used in the most efficient way possible and are represented by the output level where    = MSB.

 MSC  MPC MSB

      includes public services such as defence, the police force and public access resources, which are     and non-rivalrous.

 goods  non-excludable  Public  Merit 

Merit goods can be described as goods or services which consumers will often     but which governments believe provide       .

 positive  externalities  undervalue  overvalue benefits   

      are benefits enjoyed by a third-party when a consumer makes a purchasing decision.

Benefits  externalities  Positive  Social 

         is equal to marginal private benefit (   ) + the externalities of consumption or production.

 MPB  MPC  MSB  MSC  benefit  social  Marginal Social 

Demerit goods can be described as goods or services which consumers will often    but which governments believe provide    .

 externalities  undervalue  overvalue  positive  negative 

    are costs paid by a third-party when a consumer makes a purchasing decision.

externalities  Positive  Negative  De-merit  goods  spillover costs 

         is equal to marginal private cost (  ) - the external costs of consumption or production.

 MPC  MPB  Marginal  external  cost  social 

Governments policies aimed at correcting the market failure caused by an         of demerit goods include    ,   to alternative products and legislation.

 over  subsidies  taxes  spillover  under  consumption  costs 

Demerit goods are generally       in a free market, relative to the socially optimum level of output, because consumers only consider their own   when making purchasing decisions and not the   of consumption.

 MSB  total  utility  MSC  consumed  over 

The used car market is an example of an asymmetric     because the seller has access to     information about the product being sold than the  

purchaser  market  seller  more  less 

In asymmetric markets the equilibrium level of output will not equal the optimum output because MSC will not equal   .  In asymmetric markets either too few or too many products will be produced, at a price  to the socially efficient level.

 above  below  MSC  MSB  MPB  socially  MPC  not equal