topic 7 - theme 1 Flashcards
what is a public good?
a good or service, such as a lighthouse.
- non-excludable and non-rival
what are some examples of public goods?
- street lights
- army
- police
- you dont have to pay to use them
what is a private good?
a good where consumption by one person uses up that good for another person
- excludable and rival
what is an example of a private good?
oranges
- you have to pay for them
what is a quasi good?
occupies an intermediate position between pure public and private goods
- non-excludable and non-rival
what is an example of a quasi good?
fireworks
- sometimes you have to pay to see them
why are public goods an example of market failure?
due to the free-rider problem/non-excludability
how do you tackle the public goods problem?
state provision
what concerns may arise with state provision?
- government failure
- opportunity cost
what is information failure?
firms or consumers have insufficient information to allow the market to function properly
what is asymmetric information?
some participants in a market have better information about a trade then others
e.g dental care -> dentists
what is adverse selection?
people taking out insurance who are most likely to need it
e.g someone purchasing life insurance
what is moral hazard?
an individual who has taken out insurance is more likely to take risks
- risk a party has not entered a contractual agreement
what is a merit good?
a good that generates positive externalities in consumption
e.g. vaccinations
- tend to be under-provided by the free market
what is a demerit good?
a good that generates negative externalities in consumption
e.g. alcohol
- tend to be overprovided by the free market
