Chapter 6-9 from notes

Question 1

market failure

Answer 1

markets fail to allocate resources
efficiently and maximise social surplus

Question 2

Externality

Answer 2

when someone starts an activity that influences the well-being of a bystander, without receiving compensations nor paying for that effect.

Question 3

(Negative consumption)Social cost = ? + ?

Answer 3

Social cost = Private cost + External cost.

Question 4

(Positive consumption)Social benefits = ? + ?

Answer 4

Social benefits = Private benefits + External benefits.

Question 5

2 PUBLIC POLICIES refer to instances when govs seek to correct a market failure

Answer 5

1)Command/control policies:Regulations
2)Market based policy:Taxes

Question 6

Abatement cost

Answer 6

The abatement cost is the total cost
of reducing pollution

Question 7

Merit goods

Answer 7

Merit goods are those goods and services that the government feels that people will under-consume, and which ought to be subsidised or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service
(Education, healthcare)

Question 8

Demerit goods

Answer 8

a good or service the consumption of which is regarded unhealthy, demeaning, or otherwise socially inappropriate due to the perceived negative impacts on the consumers themself
(alcohol, tobacco)

Answer 9

i