MERIT AND DEMERIT GOODS Flashcards
What are merit goods
goods deemed more beenficial tp consumers than they realise
what important to eval/say about merit goods
its a normative consideration decided by politicians
what is at the heart of this mkt failure
imperfect info
why is imperfect infor at the heart of the mkt failure
relate to merit goods pls
if consumers dont understand how good these merit goods are for them
there must be information gaps
- eval some know but cba/dont care
imperfect information can be split into
information failure
asymmetric information
what is information failure
[in relation to merit goods]
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
merit goods usually geenrate …
with their ..
positive externalities
consumption
give examples of +ve externalities merit goods generate
health care
education
excesrise + healthy eating
explainhow theres imperfect information in realtion to merit good of education
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
EXPLAIN WHAT IMPERFECT INFOR WITHIN TEH MERIT GOOD WOULD LEAD TO
(+… )
CONCLUSION
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
explain what ahooens to sb and pb etc
what is pb
why is x greater - 3 reasons
so M..
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
Draw merit good curve
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
where does mkt allocate sr @ in relation to emrti good
priv optimum mpb=mpc
q1 p1
where does society want resources allocated in terms of merit goods
social optimum of msb=msc at pq
in a merit goods diagram what does q1-q* show
and what does this lead to
under consumpotion and production of merit goods
leading to a welfare loss
what t2 things are at the heart of this mkt failure
(merit)
informaiton failure+ +ve externalities of consumption
informaiton failure+ +ve externalities of consumption means what will be made and why
MAKE SURE USE THIS PHRASE
irrational descisions by consumers to underconsume
as lack info
What are demerit goods
goods more harmful to consumers than they realise
demeriyt goods are a what ype of cosnideration
normative consideration made by politicians
why are demerit goods mroe harmful than they realise
due to imperofect info/ assymetric infor
(info failure)
explain assymetric info in terms of demerit good
producers ahve info (info exists )but choose not to share equally with consumers (but not shared equally between 2 parties)
demerit goods usually generate
-ve externalities of consumption
give examples of -ve externalities that are also demerit goods
(is this how you supposed to frame it?)
ciggies
alchohol
gamblign
in terms of demerit goods consumers may know
theyre not good for them but dont how just bad theya re
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
what conclusion can we make from our cig explain of demerit goods
about free? mkt
in the mkt , demerit goods are overconsumed and overproduced
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
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*
where does free mkt allocate scarce resources in demerit goods
priv optimum mpc = mpb q1 p1
society wants SR allocated at social optimum msb = msc t/f
t
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
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
for the last time what is at the heart of these mkt failures
imperfect info
