Positive Externalities and Merit Goods

Question 1

A subsidy reduces the marginal ________ cost of consumption and ought to lead to an expansion of ________ towards the desired _______ optimum

Answer 1

private, demand, social

Question 2

What are merit goods?

Answer 2

goods and services that the government feels that people will under-consume, and which ought to be subsidised or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or service.

Question 3

How does information failure occur?

Answer 3

occurs when people have inaccurate or incomplete data and so make potentially ‘wrong’ choices / decisions

Question 4

In competitive markets, it is assumed there is _______ information.

Answer 4

perfect

Question 5

What occurs when merit goods and services are under-consumed under free market conditions.

Answer 5

Market failure