MERIT AND DEMERIT GOODS

Question 1

What are merit goods

Answer 1

goods deemed more beenficial tp consumers than they realise

Question 2

what important to eval/say about merit goods

Answer 2

its a normative consideration decided by politicians

Question 3

what is at the heart of this mkt failure

Answer 3

imperfect info

Question 4

why is imperfect infor at the heart of the mkt failure

relate to merit goods pls

Answer 4

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

there must be information gaps

• eval some know but cba/dont care

Question 5

imperfect information can be split into

Answer 5

information failure

asymmetric information

Question 6

what is information failure
[in relation to merit goods]

Answer 6

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

Question 7

merit goods usually geenrate …

with their ..

Answer 7

positive externalities

consumption

Question 8

give examples of +ve externalities merit goods generate

Answer 8

health care

education

excesrise + healthy eating

Question 9

explainhow theres imperfect information in realtion to merit good of education

Answer 9

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

Question 10

EXPLAIN WHAT IMPERFECT INFOR WITHIN TEH MERIT GOOD WOULD LEAD TO

(+… )

CONCLUSION

Answer 10

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

Question 11

explain what ahooens to sb and pb etc

what is pb

why is x greater - 3 reasons

so M..

Answer 11

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

Question 12

Draw merit good curve

Answer 12

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

Question 13

where does mkt allocate sr @ in relation to emrti good

Answer 13

priv optimum mpb=mpc

q1 p1

Question 14

where does society want resources allocated in terms of merit goods

Answer 14

social optimum of msb=msc at pq

Question 15

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

and what does this lead to

Answer 15

under consumpotion and production of merit goods

leading to a welfare loss

Question 16

what t2 things are at the heart of this mkt failure

(merit)

Answer 16

informaiton failure+ +ve externalities of consumption

Question 17

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

MAKE SURE USE THIS PHRASE

Answer 17

irrational descisions by consumers to underconsume

as lack info

Question 18

What are demerit goods

Answer 18

goods more harmful to consumers than they realise

Question 19

demeriyt goods are a what ype of cosnideration

Answer 19

normative consideration made by politicians

Question 20

why are demerit goods mroe harmful than they realise

Answer 20

due to imperofect info/ assymetric infor

(info failure)

Question 21

explain assymetric info in terms of demerit good

Answer 21

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

Question 22

demerit goods usually generate

Answer 22

-ve externalities of consumption

Question 23

give examples of -ve externalities that are also demerit goods

(is this how you supposed to frame it?)

Answer 23

ciggies

alchohol

gamblign

Question 24

in terms of demerit goods consumers may know

Answer 24

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

Question 25

explain demerit goods in terms of cigarettes
:
consumers dont know

they lack

therfore they make

so

Answer 25

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

Question 26

what conclusion can we make from our cig explain of demerit goods

about free? mkt

Answer 26

in the mkt , demerit goods are overconsumed and overproduced

Question 27

explain dm goods int erm of pb and sb etc

pb is

there’s an issue in

why are they less - 2 reasons

Answer 27

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

Question 28

draw demerit good graph

Answer 28

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*

Question 29

where does free mkt allocate scarce resources in demerit goods

Answer 29

priv optimum mpc = mpb q1 p1

Question 30

society wants SR allocated at social optimum msb = msc t/f

Answer 30

t

Question 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

Answer 31

there an overconsumption and production of DG which has led to a welfare loss

which is a maosr therefore allocative inefficieny

and mkt failrue

Question 32

compare a demrit good and merit good in terms of resource allocvation

Answer 32

too many resources alloatesd to merit goods

too few resources allocated to merit goods

Question 33

for the last time what is at the heart of these mkt failures

Answer 33

imperfect info