1.6 Classification of Goods and Services Flashcards
What is a free good?
It is a good that is not scarce and has no opportunity cost (air)
What is a public good?
They are goods that are missing from a free market, but they have benefits to society. (street lights and flood control systems)
They are non excludable and non rival
What is non excludable
This means that by consuming the good, someone else is not prevented from consuming the good as well
What is non rival
This is when the benefit other consumers get from the good doesn’t diminish if more people consume the good
What is the free rider problem
This is when people who don’t pay for the good but still receive benefits from it.
Why are public goods underprovided by the private sector
As they don’t make a profit from providing the good
They are difficult to put a monetary value on them
What are private goods?
They are rival and excludable. For example, a chocolate bar can only be consumed by one person. Also, property rights can be used to prevent others from using it
What is a merit good?
These are goods that are underprovided in a free market. This is a result of imperfect info as consumers don’t realise the long-term benefits of the good. Examples would be education and healthcare. These have + externalities
What is a demerit good?
These are goods that are overprovided in a free market. This is a result of imperfect info as consumers don’t realise the long-term implications of the good. Examples would be smoking and drinking. These have - externalities
