3.1 Reasons for Government Intervention in Markets

Flashcards covering public goods, market intervention, demerit/merit goods, and price controls.

Non-excludability

Goods where it is impossible or impractical to prevent individuals from using them, regardless of whether they contribute to the cost.

Non-rivalry

Goods where one individual's consumption does not reduce the ability of others to consume the same good.

Free-rider problem

A situation where individuals benefit from public goods without contributing to their cost.

Demerit Good

A good that is considered harmful to society or the individual, often with negative externalities.

Merit Good

A good that benefits both the individual and society but is often under-consumed.

Negative Externalities (Demerit Goods)

Costs to society that are not reflected in the price of the demerit good.

Positive Externalities (Merit Goods)

Societal benefits resulting from the consumption of merit goods.

Taxation (Demerit Goods)

Discouraging consumption through taxes

Public Awareness Campaigns (Demerit Goods)

Promoting responsible consumption through education

Subsidies (Merit Goods)

Incentivizing consumption through financial support

Public Provision (Merit Goods)

Ensuring widespread access to essential services

Price Ceiling

The maximum legal price a seller can charge for a product.

Price Floor

The minimum price at which goods can be sold.

Shortage

A situation where demand exceeds supply due to price ceilings.

Surplus

A situation where producers supply more than consumers are willing to buy due to price floors.