1.4.1b - Government intervention in markets to solve market failure
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11 Terms
What is state provision of public good?
State provision of public goods is the direct provision of a good or service by the government which is free at the point of consumption
What does state provision solve?
State provision solves the free rider problem as they fill in the missing markets for public goods due to firms not supplying them because of profit motivation being undermined
What are some evaluation points with state provision?
Cost - it is extremely expensive to provide public goods for free for everybody
Excess demand - due to the product being free, there will be excess demand leading to rationing and queuing
Imperfect information - How do the government know how much or what to provide
What is the aim of provision of information?
The aim is to alter behaviour in a market and it is mainly focused on consumers
How does it solve overproduction?
The information aims to reduce the quantity consumed by making the consumers aware of negative side effects for example
What are the two methods of provision of information?
Persuasive advertising and educational advertising
What is persuasive advertising?
Persuasive advertising persuades consumers to change their decisions
e.g. - “Smoking Kills
What is educational advertising?
Education advertising aims to fill an information gap
e.g. - “Did you know the average soft drink contains the equivalent of 7 teaspoons of sugar”
How does provision of information affect a market diagram?
If the provision of information is successful, D1 and MPB will align with MSB, reducing the net welfare loss and produce at Qopt, stopping overproduction
What is regulation?
Regulation is the use of laws/rules to direct consumer or producer behaviour
What are some examples of regulation?
Minimum age restrictions on products - e.g. - alcohol
Restrictions on certain antisocial or risky behaviour - e.g. - speed limits and noise restrictions
Outright bans - e.g. - illegal possession or purchase of controlled substances (drugs)