Market Failure and Public Goods
8 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a merit good?

  • A good with positive externalities that is under-provided by the market. (correct)
  • A good with only private benefits.
  • A luxury good that only wealthy consumers can afford.
  • A good that has no external effects.

What defines negative externalities of consumption?

  • Services that are fully compensated by consumers through market prices.
  • Benefits enjoyed by consumers when they purchase goods.
  • Goods that provide equal benefits to producers and consumers.
  • Costs imposed on third parties from consumer purchasing decisions. (correct)

What is the marginal social benefit (MSB)?

  • The public benefit derived from government intervention.
  • The total benefit to society, including externalities. (correct)
  • The additional private benefit enjoyed by households from consuming one more unit.
  • The benefit experienced solely by producers of a good.

How do positive externalities impact market outcomes?

<p>They result in goods being under-consumed relative to their social benefit. (C)</p> Signup and view all the answers

Which situation describes a demand curve affected by externalities?

<p>The demand curve does not account for any externalities. (B)</p> Signup and view all the answers

When should governments consider intervening in a free market?

<p>When market failures, such as externalities, lead to inefficient outcomes. (D)</p> Signup and view all the answers

Which statement best describes demerit goods?

<p>Goods that have negative externalities and are over-consumed. (A)</p> Signup and view all the answers

What should be evaluated to determine the marginal private benefit?

<p>The individual benefit gained by a consumer when consuming a good. (C)</p> Signup and view all the answers

Flashcards

Marginal Private Benefit (MPB)

Gains from consuming a good experienced by a household or business, excluding any additional benefits enjoyed by others.

Marginal Social Benefit (MSB)

The added benefit to society from consuming a good, including the private benefit and any external benefits.

Marginal Private Cost (MPC)

The cost of producing or consuming a good that falls directly on the producer or consumer.

Marginal Social Cost (MSC)

The total cost of producing or consuming a good, including both the private cost and any external costs.

Signup and view all the flashcards

Merit Good

A good that creates positive externalities, leading to under-consumption.

Signup and view all the flashcards

Demerit Good

A good that creates negative externalities, leading to over-consumption.

Signup and view all the flashcards

Positive Externalities

Benefits experienced by third parties, not directly involved in the production or consumption of a good.

Signup and view all the flashcards

Negative Externalities

Costs imposed on third parties, not directly involved in the production or consumption of a good.

Signup and view all the flashcards

Study Notes

Market Failure: Externalities

  • Externalities are unintended effects of consumption or production on third parties.
  • Positive externalities generate benefits for third parties; a good example is education.
  • Negative externalities impose costs on third parties. A common example is pollution.
  • Government intervention may be needed to address market failures caused by externalities.

Defining Public Goods

  • Public goods are non-rivalrous and non-excludable.
  • Non-rivalrous: one person's consumption doesn't reduce availability for others.
  • Non-excludable: it's difficult or impossible to prevent others from consuming the good.
  • Examples of public goods include streetlights and national defense.
  • The free-rider problem occurs when individuals benefit from a good without paying for it, leading to under-provision in the market.

Government Intervention in Response to Public Goods

  • Governments often provide public goods directly due to the free-rider problem.
  • There are efficiency considerations when the government provides public goods.
  • Governments may contract with private companies to provide public goods.
  • Possible market failures may occur in private companies providing public goods because of profit motivations and costs.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Unit 2.5 MARKET FAILURE - EXTERNALITIES PDF

Description

Explore the concepts of externalities and public goods in this quiz. Understand how market failures impact third parties and the role of government intervention. Test your knowledge on positive and negative externalities, as well as the characteristics of public goods.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser