book3

Question 1

positive externalities

Answer 1

external benefit on a third party not involved in the consumption or production of a good or service

Question 2

negative externalities

Answer 2

external cost on third party not involved in the consumption or production of a good or a service

Question 3

marginal external benefit/cost

Answer 3

additional benefit enjoyed/cost imposed from the production or consumption of the additional unit by third not involved in the consumption or production of a good or a service

Question 4

merit good

Answer 4

goods and services that are deemed socially desirable by the government and are under-consumed when left to the price mechanism because of consumer’s failure to recognise true benefits to the consumers themselves from the consumption of the good and disregard for the external benefits that could be enjoyed by third parties.

Question 5

demerit good

Answer 5

goods and services that are deemed socially undesirable by the government and are over-consumed when left to the price mechanism because of consumer’s failure to recognise expected costs to the consumers themselves from the consumption of the good and disregard for the external costs that could be incurred by third parties.

Question 6

asymmetric information

Answer 6

one side of the market (either buyers or sellers) have better information than the other

Question 7

adverse selection

Answer 7

asymmetric information between consumers and producers result in an unfavourable selection of products/buyers participating in the market, while a segment of other buyers/sellers are priced out of the market.

Question 8

moral hazard

Answer 8

economic agents take greater risks/act less carefully than they normally would because the resulting costs would not be borne by them

Question 9

supplier-induced demand

Answer 9

consumers end up buying more goods/services than what is optimal for them

Question 10

occupational immobility

Answer 10

inability and/or unwillingness of factors of production to move between occupations or industries

Question 11

geographical immobility

Answer 11

inability and/or unwillingness of factors of productions to move between geographical areas.

Question 12

public good

Answer 12

a good that is non-excludable and non-rivalrous

non-excludable: impossible to prevent someone who has not paid from consuming the good

non-rivalrous: consumption of the good by one person does not diminish the availability of the good for another person