Market Failures

Question 1

Merit good

Answer 1

A good that is under consumed in a free market because consumers do not recognize the benefit it has to the rest of society.

Question 2

Demerit good

Answer 2

A good that is over consumed in a market because the private benefit outweighs the societal cost

Question 3

Positive externality

Answer 3

A positive spillover effect to third parties

Question 4

Negative externality

Answer 4

A negative spillover effect to third parties

Question 5

Imperfect information

Answer 5

When a consumer or government decision is being made based on incomplete or flawed logic i.e smoking

Question 6

Public goods

Answer 6

A good that is both non rivalrous and non excludable.

Question 7

Why are public goods a market failure?

Answer 7

Public goods are a market failure because producers cannot reduce consumption to paying customers only.

Question 8

Non Rivalry

Answer 8

When the consumption of a good by a consumer does not disallow simultaneous consumption by another

Question 9

Non Excludable

Answer 9

A good or service that can be enjoyed by anybody free of charge, i.e the air, the London skyline.

Question 10

Non Excludable

Answer 10

A good or service that can be enjoyed by anybody free of charge, i.e the air, the London skyline.