market failure and externalities 1.3.1 and 1.3.2

Question 1

Under-provision of public goods

Answer 1

• Public goods are non-rivalry and non-excludable, meaning they are underprovided by the private sector due to the free-rider problem.
• The market is unable to ensure enough of these goods are provided.
• best examples of a public good is ​streetlights​.

Question 2

merit good

Answer 2

A merit good is a good with external benefits, where the benefit to society is greater than the benefit to the individual. These goods tend to be underprovided by the free market.

Question 3

demerit good

Answer 3

A demerit good is a good with external costs, where the cost to society is greater than the cost to the individual. They tend to be over-provided by the free market.

Question 4

market Failure is…

Answer 4

when the free market fails to allocate scarce resources at the socially optimal level

Question 5

public goods

Answer 5

free rider problem and the notion that firms are profit motivated and there would be no supply of public goods in the end

Question 6

free rider problem

Answer 6

when people are benefiting from resources, goods, or services that they do not pay for.

Question 7

income inequality

Answer 7

inequity= unfair

market faiure because its someones opinion as to when income inequality becomes too high in a free market economy