1.3.3 and 1.3.4 Public goods and info gaps

Question 1

What are public goods

Answer 1

-Have 2 characteristics, non-exculdability and non-rivalry
-Due to market failure many public goods are provided by the government but not all goods provided by the gov are public

Question 2

What is non-excludability

Answer 2

-once a good is provided its impossible to exclude anyone from the benefits
-this makes it impossible for private firms to produce public goods for profit
-e.g national defence

Question 3

What is non-rivalry

Answer 3

-one persons consumption doesn’t reduce the amount available for others
-e.g street lights

Question 4

What are private goods

Answer 4

-most goods are excludable and rivalrous
-gives the ability to assert property rights
-the process of consumer sovereignty is only possible for private goods
-e.g food, clothes

Question 5

What is the free rider problem

Answer 5

• a free rider will refuse to pay in the hope others will and they will still receive the benefits of the public good
  -so the market mechanism is unable to provide public goods

Question 6

What is perfect and symmetric info

Answer 6

-consumers and producers know everything there is to know about products and have the same level of knowledge

Question 7

What is info failure

Answer 7

-In reality consumers and producers are not fully aware of costs and benefits, this leads to decisions based on incomplete or incorrect info, this leads to incorrectly positioned MPC and MPB

Question 8

What could info failure be caused by

Answer 8

-Myopia, complex info, persuasive advertising, inability to consume/resist

Question 9

What are some examples of info failure

Answer 9

-smoking, sunbeds, obesity

Question 10

Difference between imperfect info and asymmetric info

Answer 10

imperfect- lacking crucial info to make a rational decision
asymmetric- one party has more info than the other, leading to imperfect decisions, leading to misalloction of resources

Question 11

What is a moral hazard

Answer 11

-when the party with superior info alters behaviour to benefit them whilst imposing costs on the other party
-e.g insurance

Question 12

How do the government intervene with info gaps

Answer 12

-regulation- legal bans and restrictions
-advice and guidance- persuasion, warnings
-provision of merit goods like healthcare