Pack 10

Question 1

Describe, with examples, the 2 characteristics of a public good

Answer 1

The goods that have non-rivalry (as more people consume a good and enjoy its benefits, it doesn’t reduce the amount available for others) and non-excludability (impossible to stop others from benefiting from the good) in their consumption e.g. street lights.

Question 2

Describe, with examples, the 2 characteristics of a private good

Answer 2

The goods that have rivalry (if someone else consumes it, the amount available for others is reduced) and excludability (possible to stop others from benefiting) in their consumption e.g. A&E.

Question 3

Explain why public goods are under provided in the free market

Answer 3

They have no way to force people to pay for benefiting from the public goods so there are too many free riders.

Question 4

Define the term ‘information gap’

Answer 4

Where consumers, producers or the government have insufficient knowledge to make rational economic decisions.

Question 5

Define asymmetric information

Answer 5

Where consumers and producers have unequal access to information about a good or service in the market. This could lead to a misallocation of resources.

Question 6

Identify 4 possible causes of information gaps

Answer 6

-Addiction e.g. drug addicts may be unable to stop consumption of harmful substances
-Misunderstanding the true costs or benefits of a product: e.g. the side effects of using tanning salons
-Lack of awareness
-Inaccurate or misleading information e.g. adverts trying to ‘oversell’.

Question 7

Give an example of asymmetric information

Answer 7

The gym - people don’t know how beneficial it actually is whereas fitness workers do.

Question 8

How can information gaps lead to market failure

Answer 8

We under/over estimate the private benefits of a product.