Merit Good
What is a merit good?
A good that has positive externalities but is underprovided in the free market.
What is a demerit good?
A good that causes negative externalities and is overprovided in the free market.
What are public goods?
These goods are underprovided in the private sector because they do not generate profits
What is a private good?
A product that must be purchased to be consumed, and consumption by one individual prevents another individual from consuming it.
What is lack of competition?
When there is limited competition so consumers may be at a disadvantage due to high prices, less choices, and lower quality products.
What is an example of a merit good?
Education, free access to wifi, vaccinations
What is alcohol or cigarettes?
An example of a demerit good that is harmful to health but commonly consumed.
What is non-rivalry?
A characteristic of public goods where one person’s use does not prevent another person from using it.
What is rivalry?
A characteristic of private goods where one person’s consumption prevents another from consuming the same item
What is 'missing market'?
Some goods (public/merit) are not provided by the private sector as they are too expensive.
Why does the government often subsidize merit goods?
Because they are under-consumed if left to the market due to lack of awareness or affordability (individuals may be priced out of the market)
What are negative externalities?
The economic term for the harm caused to third parties from consuming demerit goods
What is the free-rider problem?
A problem that occurs when people benefit from public goods without paying for them.
What are rivalry and excludability?
The two main characteristics of private goods
What is factor immobility?
This is when the factors of production are limited to one use - they are immobile and may be highly specialised so cannot be easily transferred across markets/use/products.