Public goods

what are the two characteristics of public goods

non -rivalrous

non-excludable

define non-rivalrous

one persons enjoyment of a good doesn’t diminish another person’s enjoyment

define non-excludable

the benefit derived from the good/service is unable to be excluded from certain individuals

give an example of a non-rivalrous good

radio broadcasts, fireworks

give an example of a non-excludable good

street lights

what is the free rider problem

non-excludable goods are subject to the free-rider problem

consumers don’t pay for a good but as they can’t be prevented from using it still benefit from it

what is the problem with the free-rider problem

there is an entirely missing market unless gov.t provided them (complete market failure)

what are the 4 categories for goods

private

common

club

public

describe the 4 types of good

how does the gov.t afford public goods

tax revenue

why do buyers and sellers fail to make rational decisions

1. lack of information

2. misunderstanding of the benefits

3. complex information

4. uncertainty over the benefits

what is meant by asymmetric information

a situation where one economic agent knows more than another, giving them more power in a market transaction

give an example of asymmetric info

dentist recommending treatment to a patient

could be the right course of action but the patient wouldn’t know, instead it could be to gain a fee

when might consumers use asymmetric info

consumers may conceal something about themselves in order to get lower insurance

what is meant by moral hazard

once protected e.g. insurance consumers are more likely to take risks

why does asymmetric information result in market failure

One side in the market has more information than the other, leading to poor decisions and inefficient allocation of resources.