Flashcards on Market Failure and Government Intervention
Market Failure and Government Intervention Explained for Students
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Market failure: Public goods & interventions
31 cards
Card 1
Question: What is a public good's 'non-rivalry' characteristic?
Answer: Consumption by one person does not reduce the amount, benefit or quality available to others.
Card 2
Question: Why do public goods not operate under normal private market pricing?
Answer: They cannot be easily priced and sold because individual consumption is hard to measure and people cannot always be excluded from consuming them.
Card 3
Question: How does private market pricing normally reflect supply and demand?
Answer: Price reflects the cost to produce a good and consumers' willingness to pay for it.
Card 4
Question: Why are public goods prone to market failure in private markets?
Answer: Because they cannot be easily priced or excluded, so private markets can't allocate them efficiently using supply and demand.
Card 5
Question: What is a merit good?
Answer: A good valuable to society that improves individual and social welfare.
Card 6
Question: Why do merit goods tend to be underproduced and underconsumed in free markets?
Answer: People often undervalue their benefits and are unwilling to pay market prices, leading to underconsumption and underproduction.
Card 7
Question: Why might government supply merit goods instead of leaving them to the private sector?
Answer: If supplied only by private firms they could be too expensive for some people; government provision helps ensure access.
Card 8
Question: Give three examples of merit goods listed.
Answer: Education, healthcare and vaccinations (inoculations).
Card 9
Question: What is a demerit good?
Answer: A good whose consumption or production harms the individual and society and creates negative spillover effects.
Card 10
Question: Why are demerit goods overproduced and overconsumed in free markets?
Answer: Consumers underestimate or ignore harmful impacts (or are unaware), and producers earn profits from overproducing them.