Public Goods (theme 1) Flashcards
What is market failure?
When the price mechanism fails to allocate scarce resources efficiently
What is complete market failure?
When no products are supplied in the markets at all ‘missing markets’
What is partial market failure?
When the market is functioning but produces the wrong quality and price
What is non - excludability?
= someone else paying for something
- e.g. streetlights, they cannot exclude someone from benefitting from it.
What is non - rival consumption?
The cost of supplying
E.g. supplying light to an extra person is £0
-if it’s available to one it’s available to all
What is non - rejectable?
something that the government put in place
E.g. streetlights, someone might not want it there however, they cannot reject it
What is a private good?
The opposite…
= rejectable
= rival consumption
= excludable
What are examples of public goods?
- flood defence
- crime control
- public service broadcasting
- vaccinations (reduced risk of disease)
What are the characteristics of a quasi - public good and what is it?
= they have both characteristics of public and private goods.
- near public good
- semi non - rival
- semi non - excludable
What is the free rider problem?
Public goods are non excludable, it is difficult to charge people from benefitting from a good or service once provided.
E.g.
- a park
- a train (not paying for a ticket)
What does the free rider problem lead to?
Leads to under provision of a good and this causes market failure
What is a merit good?
Goods the gov feel world be under - consumed which ought to be subsidised or provided free at the point of use. It does not depend on the ability to pay for a good / service
What do merit goods lead to?
Positive externalities
Why is education a merit good?
- people dont / wouldn’t want to be there
- helps reduce unemployment rate
- gives more opportunity (long - term investment)
- benefits person directly, increases proportion of income long term
What is the principle agent?
An arrangement which one entry legally appoints another to act on its behalf
- e.g. the government (school)
