40 Questions
Which of the following characteristics is NOT a feature of a public good?
Excludability
What is the primary reason why the NHS is not considered a public good?
There is rivalry and excludability
What is the consequence of asymmetric information in the market for second-hand cars?
Lower prices for all second-hand cars
What type of good is the NHS, according to the text?
Merit good
What is the term for the situation where both parties have the same knowledge in a market transaction?
Symmetric information
In a national health service, which of the following is an advantage that is likely to occur?
Benefiting from economies of scale, leading to lower average costs
What is one of the disadvantages of the public sector providing public services?
Possible diseconomies of scale
If the government subsidizes private doctors to treat people, what is one of the potential advantages?
Increased access to health care for everyone
Why might the government consider privatizing public services?
To reduce waiting lists in the National Health Service
What is one of the advantages of the private sector providing public services?
A profit incentive to cut costs and provide a more efficient service
What is a potential issue with introducing a profit motive into public services such as healthcare?
It is not practical to give performance-related pay to nurses and doctors
Why might the government provide a subsidy for healthcare services?
Because health is a merit good and will be underprovided in a free market
What is a potential drawback of government advertising campaigns to overcome market failure?
They may not be effective in changing people's behavior
What is a possible justification for government regulation in the healthcare industry?
To prohibit certain behavior that may harm people's health
Why might the government use taxation policies to overcome market failure in the healthcare industry?
To fund government advertising campaigns
Why might a government prohibit the production and consumption of certain goods or services, rather than trying to tax them?
To prevent people from paying the full social cost
What is one potential drawback of providing free NHS prescriptions?
Increased opportunity cost of higher taxes or lower government spending in other areas
What might be an unintended consequence of prohibiting a certain good or service?
Empowerment of organized crime
Why might people underestimate the benefits of taking a prescription drug?
Lack of affordability due to high prices
What is the main advantage of free NHS prescriptions, according to the text?
Reduced inequality in healthcare
What is the main reason why firms are unwilling to provide public goods?
Because it is difficult to charge consumers for using them
What is the primary objective of subsidizing goods with positive externalities?
To increase social efficiency
What is the effect of a subsidy on the supply curve?
It shifts the supply curve to the right
What is the primary function of taxation policies in the context of public goods?
To provide a means of charging consumers for public goods
Why might a subsidy be ineffective in increasing demand?
If demand is inelastic
What is the primary advantage of tradeable permits in addressing negative externalities?
They create a market-based incentive to reduce pollution
Why are quasi-public goods often provided by the government?
Because they are non-rivalrous but partially excludable
What is a potential drawback of subsidy programs?
They require higher taxes on other goods
What is the socially efficient level of production in a subsidized market?
Where SMB = SMC
What is the primary goal of subsidy programs in the context of positive externalities?
To internalize the positive externality
What is a possible result of government intervention in the economy, according to the concept of government failure?
Net welfare loss
What can be a limitation of government intervention in the economy, with respect to incentivizing workers?
Lack of profit motive
What is an example of an unintended consequence of government intervention in agriculture?
Over-production and environmental degradation
What is a potential drawback of government subsidies in promoting economic development?
Increased dependence on government support
What is a possible reason for government failure in promoting economic development?
Inefficient allocation of resources
What is a potential consequence of price controls in agriculture, as seen in minimum prices?
Over-production and environmental degradation
What is a limitation of government provision of public services, such as healthcare?
Lack of incentives for efficient service provision
What is a potential reason for government intervention in the economy, with respect to economic development?
To reduce poverty and promote economic development
What is a possible drawback of government regulation in industries, such as healthcare?
Inefficient allocation of resources
What is a potential benefit of government subsidy programs, with respect to economic development?
Increased economic growth
Study Notes
Public Goods and Private Goods
- A public good is a good that is non-rivalrous (consumption by one person does not reduce the amount available for others) and non-excludable (it is not possible to provide a good without it being possible for others to enjoy).
- Examples of public goods include national defense and street lighting.
- A private good is a good where the benefits accrue to the individual and others are prevented from consuming it. Private goods are rivalrous and excludable.
- Examples of private goods include apples and cars.
Asymmetric Information
- Asymmetric information occurs when one party has more information than other parties.
- This can lead to problems such as people being reluctant to buy second-hand cars due to lack of trust, resulting in lower prices for all second-hand cars.
Merit Goods
- A merit good is a good that people may underestimate or be unaware of the benefits of consuming.
- Examples of merit goods include vaccinations and a healthy workforce, which have positive externalities.
- The government may subsidize private doctors to treat people or pay for a national health service directly to ensure everyone has access to this important merit good.
Public Sector vs. Private Sector
- The public sector (government) provides goods and services, but not all goods provided by the public sector are public goods.
- The private sector has a profit incentive to cut costs and provide a more efficient service.
- Disadvantages of the private sector include the difficulty of introducing a profit motive in public services, potential for inequality, and underprovision of merit goods.
Government Intervention
- The government may provide information about certain goods to overcome market failure, such as warning about the health dangers of tobacco and alcohol.
- Regulation can be used to overcome market failure, but it depends on enforceability.
- Subsidies can be used to encourage consumption of underprovided goods, but they can be expensive and may not be effective if demand is inelastic.
Evaluation of Government Intervention
- Government advertising campaigns can be costly and may not be effective.
- Regulation can be simple and effective, but may not be the most efficient level of production in society.
- Subsidies can increase demand, but may require higher taxes and may not be effective if demand is inelastic.
Welsh Government Policies
- The Welsh government has introduced free NHS prescriptions to overcome the market failure of underconsumption of prescription drugs.
- Free prescriptions can help reduce inequality, but may require higher taxes or lower government spending in other areas.
Subsidies
- A subsidy is a payment by the government to firms to encourage consumption of underprovided goods.
- Subsidies can increase demand and reduce price, but can be costly to the government and may not be effective if demand is inelastic.
Positive Externalities
- A positive externality occurs when producing a good causes a benefit to a third party.
- Examples include beekeeping, which helps to pollinate nearby apple trees, and taking the train to work, which reduces traffic congestion.
Government Failure
- Government failure occurs when government intervention in the economy causes a net welfare loss.
- Causes of government failure include lack of incentives for government workers and unintended consequences of government intervention.
Learn about public goods, how they differ from private goods, and how they can be provided by the free market or the public sector. Understand the characteristics of public goods and how to identify them.
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