Lesson 13 - Market Failure

Question 1

What are public goods?

Answer 1

Goods that are non rival and non excludable

Question 2

What are private goods?

Answer 2

Goods that are excludable and rival

Question 3

What is the difference between complete and partial market failure?

Answer 3

Partial - the market exists, but wrong quantity or price
Complete - the market doesn’t exist

Question 4

What is the free rider problem and what does this mean for the production of public goods?

Answer 4

• free riders are people who can enjoy public goods without paying for them (not possible to make profit from them)
• removes the profit incentive and means that most public goods have to be provided by the government, because the private sector wont

Question 5

What are Quasi public goods?

Answer 5

Goods that are not fully rival, and can be somewhat excludable

Question 6

How can governments solve the free rider problem, and what is the issue with this solution?

Answer 6

• paying for public goods through taxation
• public goods made using tax money may not be used by everyone who paid the tax

Question 7

What are merit goods?

Answer 7

Goods that are better for consumers than they realise - underproduced and underconsumed

Question 8

What are demerit goods?

Answer 8

Goods that are worse for consumers than they realise - overproduced and overconsumed

Question 9

What is the Coase theorem?

Answer 9

• clear property rights
• if someones property is damaged, they should sue for it
• passes external costs back into the market
• no need to government intervention

Question 10

What is the issue with the Coase theorem?

Answer 10

• difficult to establish property rights on global commons
• government would need to intervene in this case since there is no clear owner