9)types of goods and information failure Flashcards
Define merit goods??
Goods and services that the government feels will be under consumed
Examples of merit goods
education
healthcare
museums
public libraries
Why do merit goods lead to market failure
- They create positive externalities that aren’t recognised by the private consumers, they have marginal social benefits higher than the marginal private benefits
- Often arise from information failure; lack of awareness of the positive externalities from consumers
- uneven access to merit goods create inequality, consumption shouldn’t be based on ability to pay
What is the governments role in merit goods?
Provide merit goods as state provision/ heavily subsidies to reduce in equality and encourage consumption.
Define demerit goods
Goods and services that would be over-provided if left to the free market
-they are deemed undesirable through the political process
Examples of de merit goods
alcohol, tobacco, gambling, sugar (certain foods)
Why do de merit goods lead to market failure?
-The current level of consumption is higher that the socially optimum level deemed by the government, as they create negative externalities, the MSB is negative
What role do the government play in demerit goods?
- deeming goods to be demerit goods
- tax, regulating or prohibiting their production and consumption by discouraging it/ raising its price
Define information failure
when some or all participants in an economic exchange do not have perfect knowledge
Define asymmetric information failure
When one party in an economic exchange knows more than the other
examples of information failure/ asymmetric information
- Asymmetric= a car dealer, an expert of a good/service knows more about it than the consumer, so may be withholding information that would put the consumer off
- insurance companies- a consumer may withhold information that would raise their insurance costs, so the insure doesn’t know the full costs and risks of the buyer
Whats a moral hazard?
the risk that a party to a transaction has not entered into the contract in good faith (provided misleading information)
What are public goods with examples?
Public good cannot normally be provided by the public sector- commodities of services provided without profit e defence, streetlights, Clean air
What are the two characteristics of public goods and what do they mean???
Non rivalrous- one persons consumption does not reduce the amount available to everyone else
non-excludable- no one can be excluded from enjoying the benefits of public goods once provided
What are quasi public goods with an example??
when a good only has one of the two characteristics of public goods eg police services are non- excludable but may be rivalrous
