information provision and market failure

Question 1

what is information provision and what for

Answer 1

government funded provision (advertising, education) to encourage or discourage consumption for merit and demerit goods

Question 2

effect on graph (info provision) merit and demerit

Answer 2

merit goods
-MPB to MSB to equal (MSB=MPB + advertising
-falls to q star

demerit goods
-MPB goes to MSB (MSB = MPB + negative advertising)
-falls to q star

Question 3

how information provision works to solve market failure

Answer 3

-demand shift
-consumers make rational decision knowing true MPB
-solve under/over consumption
-allocative efficiency and welfare max

Question 4

issues using information provision to solve market failure

Answer 4

-cost
-non guarantee of success
-long run (takes time to influence and see adverts)