6) Public Goods - MMT Flashcards

1
Q

What is the most prominent information failure leading to market failure?

A

The existence of merit goods and demerit goods

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2
Q

What is a third major example of market failure?

A

Incomplete or completely missing markets, in other words there is no market

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3
Q

When do missing markets occur?

A

When there is a big demand for a good or service but no free market business wants to provide

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4
Q

When do incomplete markets occur?

A

When there is is a big demand for a particular good or service but not enough private sector businesses are interested in meeting this demand

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5
Q

Most goods are…

A

Private goods

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6
Q

What is a private good?

A

Is what someone consumes the good, and then no-one else can consume that particular good

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7
Q

What are examples of a private good?

A

Cereal, chocolate, haircuts

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8
Q

For private , what sort of incentive is there?

A

There is a large profit incentive for privately owned businesses to meet the demand for the good or service

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9
Q

What are Public Goods?

A

Are commodities or services provided without profit to all members of society, usually by the government

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10
Q

In general why do private sector businesses not produce public goods?

A

In general, private sector businesses are not interested in providing these goods as they do not see that it is possible for them to make a profit from providing them

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11
Q

Who normally produces public goods?

A

Normally have to be provided by the government; otherwise, they wouldn’t exist

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12
Q

For pure public goods…

A

The market is missing

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13
Q

What are the 2 main characteristics of a pure public good?

A

Non-excludability and non-rivalry

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14
Q

What is non-rivalry?

A

Consumption of the good by one person does not reduce the amount available for consumption by another person; does not make it more difficult for someone else to consume it

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15
Q

What are examples of non-rivalry?

A

Listening to a radio station/street lighting

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16
Q

What is non-excludability?

A

Consumption by one individual makes it impossible to exclude any other individual from having the opportunity to consume

17
Q

One non-excludability is provided…

A

No person can be excluded from benefiting (or suffering, like from pollution)

18
Q

What are examples of non-excludability?

A

Eg driving on a public road; street lighting

19
Q

What 2 other traits do pure public goods have?

A

1) zero marginal cost of production
2) non-rejectability

20
Q

What does zero marginal cost of production mean?

A

Once a public good is provided, the cost of providing for one extra user is zero

21
Q

What is an example of zero marginal cost of production?

A

Eg the UK armed forces defends the country. Just because one more family move to the UK the cost of defending the country does not change

22
Q

What does non-rejectability mean?

A

Once a public good has been provided then the beneficiaries of that good cannot avoid consuming it

23
Q

What is an example of Non-rejectability?

A

Eg if you live in England, you cannot choose to be defended by the USA instead

24
Q

Pure public goods have all these traits:

A
  • non-rivalry
  • non-excludability
  • zero marginal cost of production
  • non- rejectability
25
Q

What are the best examples of pure public goods?

A
  • Defence of the country
  • Street Lighting
  • Flood barriers
  • Light houses
26
Q

What is a quasi-public good?

A

Is one that have some traits of public goods but not others

27
Q

What is an example of a quasi-public good?

A

Eg public roads may be non-excludable but they’re not non-rivalrous - if they get too busy you can’t go anywhere

28
Q

Why do public goods cause market failure?

A

Due to the existence of free riders

29
Q

What is a free rider?

A

A consumer or business who benefits from a good or service but does not pay for it

30
Q

With pure public goods, how do they charge users?

A

It is not possible to charge users for their individual use, if the army decides to charge individual households for defence and I paid up but my next-door neighbour refused, would they be less defended? No. This is why free rides exist

31
Q

The existence of free riders means that private businesses are unable to…

A

Charge everybody who uses the service