Economics paper 1 ( MF ) Flashcards
What is a demerit good ?
A good such as tobbaco for which the social costs of consumption exceed private costs
What is a merit good ?
A good such as healthcare for which the social benefits of consumption outweigh the private benefits
How do externalities lead to a wrong quantity of goods being produced and consumed ?
Negative externalities are produced in production , real costs are passed on
Goods end up being too cheap as the price under reflects the costs of production
Too much of it becomes produced or consumed
What are some negative consumption externalities ?
Effects of second hand smoke
Fly tipping attracting rats
Emissions from cars
What are some positive consumption externalities
Pleasure gained from walking past a beautiful building or place
Using reusable shopping bags and bottles
What is a consumption externality ?
An externality generated in the course of consuming a product or service
What is a production externality ?
An externality generated in the course of producing a good or service
What is a negative externality ?
When the production or consumption of a good or service causes a negative impact on a third party
Social costs > private cost
What is a positive externality
When the consumption or production of a good or service causes a benefit to a third party
Social benefit > private benefit
What is a quasi public good ?
A good which is not fully rivalrous and not fully excludable
Like healthcare
What is a public good ?
A good which is non excludable and non rivalrous
Usually provided by the government
What is a private good ?
A good that is excludable and rivalrous
Usually provided by private businesses
What is market failure ?
When the market mechanism leads to a misallocation of resources in the economy
