Topic 7 - public goods and info gaps Flashcards
private good
a good where people can be excluded from consuming the good and consumption by one person means that the good is not available for consumption by another.
public good
a good which is non-excludable and non-rivalrous - consumers cannot be excluded from consuming the good, consumption by one person does not affect the amount of the good available for others to consume.
free rider problem
when an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision.
quasi- public good
a good that is closer to a public good than a private good, but is not fully a public good.
information failure
a lack of information that results in consumers and/or firms making decisions which are not rational and do not maximise social welfare.
asymmetric information
when information is not shared equally between two parties carrying out a transaction and one party has better information about market conditions than the other.
examples of asymmetric information:
healthcare, dental care, environment (environmental consequences of actions), consumer purchases (e.g. car dealership), insurance.
adverse selection
a situation in which a person at risk is more likely to take out insurance
moral hazard
a situation in which a person who has taken out insurance is prone to taking more risks.
merit goods
goods which society feels are ‘good for you’ and socially desirable. With the idea of failure of information, a merit good is defined as a good that is better for a person than the person who may consume the good realises.
demerit good
goods which society feels are ‘bad for you’ and socially undesirable. With the idea of failure of information, a demerit good is defined as a good that is worse for a person than the person who may consume the good realises.
