List of the Most Important Definitions for Chapter 3: Government Intervention in the Price System (CIE-AS)

Another list of important definitions:

1. Buffer stock scheme: It is a measure taken by the government to stabilise prices in volatile markets

2. Cost-benefit analysis: An analysis of a project which includes the valuation of both social benefits and social costs

3. Demerit goods: Goods that are considered as harmful and degrading to the consumers but they are always being over-consumed due to information failure

4. Free rider: Refers to people who benefit from the provision of a good or service even if they do not make any monetary contribution themselves

5. Information failure: A situation where people or firms lack the full information that would allow them to make the best decisions

6. Market failure: It is when the interaction of market demand and market supply fails to allocate resources in the most efficient way thus resulting in net welfare loss

7. Maximum price policy: The highest possible price for a good or service, above which it cannot increase  

8. Minimum price policy: The lowest possible price for a good or service, below which it cannot fall

9. Merit goods: Goods that are beneficial to the consumers but they are always being under-consumed due to information failure

10. Negative externalities (external costs): Costs that fall onto a third party which is not being part of the transaction/ difference between social costs and private costs/ negative spillover effect/ costs that are not captured or reflected by the price mechanism/ costs external to an exchange

11. Negative consumption externality: It refers to the negative spillover effect associated with the consumption of a particular good or service

12. Negative production externality: It refers to the negative spillover effect associated with the production of a particular good or service

13. Non-excludability: It is where the consumption of a good does not prevent its consumption by someone else

14. Non-rejectability: A situation in which individuals cannot abstain from the consumption of a public good even if they wanted to

15. Non-rivalry: It is when the consumption of one good does not diminish its availability to someone else

16. Price instability: A situation in which the prices of a particular good alter on daily or even hourly basis and it may take both sides of extreme

17. Private benefits: Benefits that fall directly onto consumers or producers when they engage in an economic transaction

18. Private costs: Costs that fall directly onto consumers or producers when they engage in an economic transaction

19. Positive externalities (external benefits): benefits that fall onto a third party which is not being part of the transaction/ difference between the social benefits and private benefits/ positive spillover effect/ benefits that are not captured or reflected by the price mechanism/ benefits external to an exchange

20. Positive consumption externality: It refers to the positive spillover effect related to the consumption of a particular good or service

21. Positive production externality: It refers the positive spillover effect related to the production of a particular good or service

22. Private goods: Goods that are bought and consumed by individuals for their own benefit

23. Public goods: Goods and services that are provided by the public sector in which if left to the market forces, none will be produced

24. Social benefits: Sum of private benefits and external benefits

25. Social costs: Sum of both private costs and external costs

26.Welfare gain: Economic welfare that is gained as a result of increasing or decreasing the production and consumption of a good

27. Welfare loss: Economic welfare that is lost as a result of too much or too little production and consumption of a good