1.6 Classification of Goods and Services Flashcards

1
Q

What is a free good?

A

It is a good that is not scarce and has no opportunity cost (air)

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2
Q

What is a public good?

A

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

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3
Q

What is non excludable

A

This means that by consuming the good, someone else is not prevented from consuming the good as well

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4
Q

What is non rival

A

This is when the benefit other consumers get from the good doesn’t diminish if more people consume the good

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5
Q

What is the free rider problem

A

This is when people who don’t pay for the good but still receive benefits from it.

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6
Q

Why are public goods underprovided by the private sector

A

As they don’t make a profit from providing the good
They are difficult to put a monetary value on them

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7
Q

What are private goods?

A

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

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8
Q

What is a merit good?

A

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

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9
Q

What is a demerit good?

A

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

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