1.3.3 - Public goods Flashcards
Define Merit Goods
Goods and services that government feels people will UNDERCONSUME and which ought to be SUBSIDISED or provided FREE AT THE POINT OF USE so that consumption DOESN’T depend primarily o the abiliyt to pay for the good or service
Define Non rival
consumption of a product does not reduce the amount available for others
Define non-excludable
The benefits derived from pure public goods cannot be confined solely to those who have paid for it.
What is the free rider problem and what is a free rider
This says that you cannot charge an individual a price for the provision of a non-excludable good because someone else will gain the benefit from it without paying anything.
A free rider is someone who receives the benefits without paying
for it.
Why does the private sector not provide public goods
Private sector producers will not provide public goods to people because they cannot
be sure of making a profit , due to the non-excludability of public goods
Why does the private sector not provide public goods
Private sector producers will not provide public goods to people because they cannot
be sure of making a profit , due to the non-excludability of public goods
Why must the government provide public goods
if the provision of public goods was left to the market mechanism, the market would
fail and so they are provided by the government and financed through taxation
Define social costs/benefit
Social costs/benefits are the costs/benefits of the activity to society as a whole.
Define merit goods
a good with external benefits, where the benefit to society is greater than the benefit to the individual. These goods tend to be underprovided by the free market
Define demerit goods
A demerit good is a good with external costs, where the cost to society is greater than the cost to the individual. They tend to be over-provided by the free market.
Why is it difficult to work out the size of the externality
It is difficult to work out the size of the externality as it tends to be placed on value judgements, since it is difficult to monetise external costs. Many externalities are involved with information gaps, as people are unaware of the full implications of their decisions.
What is a positive externality
Social benefit > private benefits
Since external benefits are present
What is a negative externality
Social costs < private costs
since external costs are present
What is the social optimal level of output
Where all external benefits and external costs are accounted for
Why are free riders a problem
While not paying for a good they continue to use it, thus the good is likely to be under provided or not provided at all
