MERIT AND DEMERIT GOODS Flashcards

1
Q

What are merit goods

A

goods deemed more beenficial tp consumers than they realise

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2
Q

what important to eval/say about merit goods

A

its a normative consideration decided by politicians

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3
Q

what is at the heart of this mkt failure

A

imperfect info

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4
Q

why is imperfect infor at the heart of the mkt failure

relate to merit goods pls

A

if consumers dont understand how good these merit goods are for them

there must be information gaps

  • eval some know but cba/dont care
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5
Q

imperfect information can be split into

A

information failure

asymmetric information

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6
Q

what is information failure
[in relation to merit goods]

A

theres a problem witht the info

[whether that be info not present/not clear/consumers choosing to ignore info]

so consumers dont fully understand the benefits of merit goods

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7
Q

merit goods usually geenrate …

with their ..

A

positive externalities

consumption

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8
Q

give examples of +ve externalities merit goods generate

A

health care

education

excesrise + healthy eating

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9
Q

explainhow theres imperfect information in realtion to merit good of education

A

indi understand positives of consuming edu

but dunno just how good as beenfits show in the future

therefore indi may underestimate significance of edu for income and better living standard

~
as dont know exactly how much income would increase if they did this

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10
Q

EXPLAIN WHAT IMPERFECT INFOR WITHIN TEH MERIT GOOD WOULD LEAD TO

(+… )

CONCLUSION

A

irrational descisions of consumers underconsuming education /mg
consuming edu generate +ve externalities in consumption

Therefore get conclusion edu / MG will be under consumed and underproduced in a free market

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11
Q

explain what ahooens to sb and pb etc

what is pb

why is x greater - 3 reasons

so M..

A

PB lower than full SB

SB greater because include full info for consumers
- + the idea they make rational decisions to consume at the right level
+ include +ve externalities of consumption

so MSB > MPB

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12
Q

Draw merit good curve

A

y axis - price costs benefits

x axis - quantity

msb higher than mpb

draw supply = mpc=msc

p1 q1 at priv optimum mpb =mpc

pq at MSB = MSC

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13
Q

where does mkt allocate sr @ in relation to emrti good

A

priv optimum mpb=mpc

q1 p1

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14
Q

where does society want resources allocated in terms of merit goods

A

social optimum of msb=msc at pq

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15
Q

in a merit goods diagram what does q1-q* show

and what does this lead to

A

under consumpotion and production of merit goods

leading to a welfare loss

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16
Q

what t2 things are at the heart of this mkt failure

(merit)

A

informaiton failure+ +ve externalities of consumption

17
Q

informaiton failure+ +ve externalities of consumption means what will be made and why

MAKE SURE USE THIS PHRASE

A

irrational descisions by consumers to underconsume

as lack info

18
Q

What are demerit goods

A

goods more harmful to consumers than they realise

19
Q

demeriyt goods are a what ype of cosnideration

A

normative consideration made by politicians

20
Q

why are demerit goods mroe harmful than they realise

A

due to imperofect info/ assymetric infor

(info failure)

21
Q

explain assymetric info in terms of demerit good

A

producers ahve info (info exists )but choose not to share equally with consumers (but not shared equally between 2 parties)

22
Q

demerit goods usually generate

A

-ve externalities of consumption

23
Q

give examples of -ve externalities that are also demerit goods

(is this how you supposed to frame it?)

A

ciggies

alchohol

gamblign

24
Q

in terms of demerit goods consumers may know

A

theyre not good for them but dont how just bad theya re

25
explain demerit goods in terms of cigarettes : consumers dont know they lack therfore they make so
consumers don't how how just bad they are e.g likelihood of getting cancer they lack info perfectly therfore they make irrational descisions so overconsumer demerit goods as well as -ve externalities in consumption
26
what conclusion can we make from our cig explain of demerit goods about free? mkt
in the mkt , demerit goods are overconsumed and overproduced
27
explain dm goods int erm of pb and sb etc pb is there's an issue in why are they less - 2 reasons
pb higher than SB there is an issue in consumption sb is less as includes true private benefits when there's full info about just how bad demerit goods are + include -ve external benefits which negatively bring impact 3rd parties and brings sb down
28
draw demerit good graph
y axis - price/cost/benefits x axis - quantioty mpb higher than msb suply curve up with mpc = msc p1 at mpb=mpc + q1 q* at msc msb + p*
29
where does free mkt allocate scarce resources in demerit goods
priv optimum mpc = mpb q1 p1
30
society wants SR allocated at social optimum msb = msc t/f
t
31
what can we see from our demerit grapsh and conclude about market failure 3 points theres a this has led to which is a x/x and therfore
there an overconsumption and production of DG which has led to a welfare loss which is a maosr therefore allocative inefficieny and mkt failrue
32
compare a demrit good and merit good in terms of resource allocvation
too many resources alloatesd to merit goods too few resources allocated to merit goods
33
for the last time what is at the heart of these mkt failures
imperfect info