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Private costs and benefits
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Market failure
because they are only concerned with their own private costs
and benefits
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External costs
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Social costs
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External benefits
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Social benefits
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An economic use of
resources?
If total social benefit > total social cost
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Correcting market failure
How can a government in a mixed economy ensure that firms and consumers take
account of the external costs and benefits of their decisions and actions?
© Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
Correcting market failures