Final answer:
Market failures on demand and supply sides occur due to incomplete consumption information and producers not bearing full costs, respectively. Efficient markets, consumer surplus, and producer surplus reflect ideal transactions, while externalities, both negative and positive, represent unaccounted costs or benefits. Public goods offer unlimited access without rivalry, unlike private goods, and government intervention aims to correct externalities.
Step-by-step explanation:
Please Define the Following and Give Your Unique Example for Each
- Market failure (demand side): Occurs when demand does not reflect consumers' full willingness to pay for a good or service, often because they lack perfect information. An example could be the underconsumption of essential vaccines because individuals are not fully aware of the benefits, leading to higher public health costs.
- Market failure (supply side): Happens when producers do not bear the full cost of a product, and thus they overproduce it. A typical case is when factories emit pollution during production without paying for the environmental damage caused.
- Efficiently functioning market: A market scenario where supply and demand are in equilibrium and all associated costs and benefits are fully accounted for. One example is a competitive market for technology products like smartphones, where numerous producers and informed consumers drive the market towards equilibrium.
- Consumer surplus: Represents the difference between what consumers are willing to pay for a good or service and what they actually pay. For example, if a customer is willing to pay $150 for a pair of shoes but buys them for $100, the consumer surplus is $50.
- Producer surplus: The difference between the amount a producer is paid for a good compared to the minimum they would accept. For instance, if a farmer receives $5 for a bushel of corn that cost $3 to produce, the producer surplus is $2.
- Negative externality - overproduction: Occurs when a company's production creates adverse side effects that are not reflected in the cost of production, like air pollution from a factory affecting the health of nearby residents.
- Positive externality - underproduction: Arises when an activity has beneficial side effects that are not reflected in the revenue received, like a homeowner planting a garden that improves neighborhood aesthetics but not being compensated for this benefit.
- Public good: A good that is non-excludable and non-rivalrous, meaning consumption by one individual does not reduce availability to others. Examples include a public park or a lighthouse.
- Private good: A good that is both excludable and rivalrous, where the consumption by one person prevents another from consuming it. A classic example is a slice of pizza - once eaten, it cannot be consumed by someone else.
- Government intervention to correct externalities: Refers to actions by the government to address market failure due to externalities, such as taxing pollutants or subsidizing green energy projects to ensure that the social costs and benefits of production and consumption are fully accounted for.