Public Goods, Info Failure and Gov. Failure Flashcards
(left overs from Market Failure)
Define Public Goods
a good that individuals cannot be excluded from using or could benefit from without paying for it (e.g. street lights)
What is Non-excludability
Once the good is provided to one person, it is impossible to prevent others from using it too
What is Non-rivalry
Consumption of the good by one person does not leave less for another person to consume
What is a Private good?
A good which is both rivalrous and excludable (so there is incentive for people to pay for it)
What is the free-rider problem
Because everyone has access to a public good once one person pays for it, Mr. X will wait for Mr. Y to buy the good then use theirs. but if Mr. Y thinks the same as Mr. X then the good simply won’t be provided
What is the valuation problem
It is difficult to measure the value a consumer gets using public goods
Examples of public goods
National defence
Street lamps
Lighthouses
Roads
Policies to solve the market failure of public goods
Toll roads
Fishing licenses
Age restrictions
What is a lack of information
When decisions are based on imperfect information and are not the optimum decisions that would have been made if there was perfect (full information)
What is asymmetric information
When one side has more information than the other side, which they exploit to their own advantage
What is adverse selection
When a consumer will only pay mid range for a good because the information they get isn’t trustworthy,
Then the producers selling the goods worth more than the average leave the market and this continues until nobody is left
What is the Principle-Agent problem?
A conflict in priorities between a person and the representative authorised to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal.
What government failures are there resulting from intervention
Distortion of Price-signals
Unintended consequence
Excessive administrative costs
Information gaps
Conflicting objectives (gov. cant do two things that conflict)
Public choice theory (self-interested politicians)
