Microeconomics Other Forms of Market Failure

Question 1

Private good

Answer 1

a good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous

Question 2

Public good

Answer 2

a good that is non-exclusive and non-rivalrous-consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume

Question 3

Free-rider problem

Answer 3

when an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision

Question 4

Merit good

Answer 4

a good that brings unanticipated benefits to consumers, such that society believes it will be underconsumed in a free market

Question 5

Demerit good

Answer 5

a good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a free market

Question 6

Asymmetric information

Answer 6

a situation in which some participants in a market have better information about other market conditions than others

Question 7

Adverse selection

Answer 7

a situation in which a person at risk is more likely to take out insurance

Question 8

Moral hazard

Answer 8

a situation in which a person who has taken out insurance is prone to taking more risk