1.3 Whiteboard Tasks Flashcards
What is a Merit good?
A merit good is a good that is considered under-consumed in an economy such as healthcare
What is a Demerit good?
A demerit good is a good that is considered unhealthy, polluting or socially undesirable such as smoking, fatty foods, gambling or alcoholic beverages
Define Market Failure
When supply and demand in a market results in an inefficient use of resources. Markets are not operating at a socially optimum level of output
What are the three types of Market Failure?
-Public goods- Not provided by the free market as they are not profitable for firms
-Externalities-Not provided y the free market as they are not profitable for firms
-Information Gaps-Market Equilibrium does not take into consideration buyer/seller knowledge
What does a cost and benefits diagram look like?
Looks like a normal supply and demand diagram but instead of supply it is MPC and demand is MPB and the x axis is labelled Q and the y axis is labelled P/C/B
Define externalities
Impact on third parties that weren’t involved in the transaction but have been affected by that good or service being consumed. Can be positive or negative impact
What is the difference between a positive and negative externality?
Positive externalities provide an external benefit t the third parties and negative externalities provide an external cost to the third parties.
Out of positive and negative externalities which one is under-consumed and which one is over-consumed?
Positive Externalities = Under-consumed
Negative Externalities= Over-consumed
What does MPB stand for?
Marginal Private Benefit and it is the consumption.
What does MPC stand for?
Marginal Propensity to consume and it is the production.
What is deadweight loss?
Shading an area under or over consumption of a good or service
What is the difference between a public and a private good?
A public good is Non-excludable and Non-rivalrous.
A private good is excludable and rivalrous
Why do private firms not provide public goods?
Firms have no incentive to pay for public goods which people will consume without paying for it. This is because no one can be excluded from using public goods.
What is the benefit of public goods being in state provision?
Quality of life is much better with public goods in and private firms have no incentive to pay for them so someone has to.
What are Quasi Public goods?
Public goods that are provided free of charge and everyone can use them. They can be used up and so then it excludes some consumers from using them. e.g. sun loungers on a beach as there are only a certain amount cost-free that can be used.
