Economics - Public goods, information gaps and government intervention

  • Created by: crwxox
  • Created on: 21-12-16 10:54
What is a private good?
A good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous
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What is excludability?
When other people can be excluded from consuming it
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What does rivalrous mean?
Once consumed by one person, it cannot be consumed by another
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What is a public good?
A good that is non-exclusive and non-rivalrous in consumption
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Give an example of a private good
A drink - you can choose to share it but you don't have to and by drinking it you prevent anyone else from doing so
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Give an example of a public good
Street lights - Anyone walking past it can benefit from it and the fact that one person has walked past it doesn't mean that there is less light available for other walkers
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What is the free rider problem?
When an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision
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What is symmetric information?
When all traders in a market have the same information about market conditions
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What is asymmetric information?
A situation in which some participants in a market have better information about market conditions than others
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Give three examples of asymmetric information
Second-hand cars, insurance and merit goods
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What is adverse selection?
A situation in which a person at risk is more likely to take out insurance
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What is moral hazard?
A situation in which a person who has taken out insurance is prone to taking more risk
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What are merit goods?
Goods that bring unanticipated benefits to consumers such that society believes it will be under consumed in a free market
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What is government failure?
A misallocation of resources arising from government intervention that causes a divergence between marginal social benefits and marginal social costs
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What is internalising an externality?
An attempt to deal with an externality by bringing an external cost or benefit into the price system
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Give an advantage and a disadvantage of pollution permits
A - Incentive to produce less pollution as it is more expensive to purchase pollution permits than to make production methods 'cleaner'. D - Method for the authorities to check pollution levels may not be cost-effective
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What is NIMBY (not in my back yard)
When people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their own area
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What is prohibition?
An attempt to prevent the consumption of a demerit good by declaring it illegal
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Other cards in this set

Card 2


What is excludability?


When other people can be excluded from consuming it

Card 3


What does rivalrous mean?


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Card 4


What is a public good?


Preview of the front of card 4

Card 5


Give an example of a private good


Preview of the front of card 5
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