Public Goods, Externalities and Information Asymmetries Flashcards

(34 cards)

1
Q

List sources of market failures

A
  • imperfect compet.
    -pub. goods
    -external.
    -info. asyymettrics
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Explain what an exclusive good is

A
  • a person can be prev. from
    -consum. good
    -by another person
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Explain what a rivalrous good is

A
  • if a person cons. a good
    -another person cannot cons. the same good OR
    -less availab. 2 other people
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Explain what a public good is

A
  • not EXCLU.
    -not RIVAL.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

TRUE or FALSE: the justice system is a public good

A
  • TRUE
    -Not. Excludable:
    - Can’t exclud. ppl from using it
    -Non-rivalrous:
    -hving access 2 it, doesn’t mean less ppl hv access
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain what a club good is

A

-Excl.
- + Non-rival.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain what a common pool/ resources good is

A

-Non-exclusive
-Rivalrous

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain what private good is

A
  • good which is:
    -exclusive
    • rival.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain what the tragedy of the commons is

A
  • the tend. for a resource that has NO PRICE
    -2 be used until its marg. ben. falls to 0
    -overexpl. till no ben. for next at all
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Fishing at the neighbourhood’s pond has no price. however, the amount of fish will soon be depleted. What can the government do to prevent marginal ben. from being 0

A

-fish. licenses + quotas

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain what a quasi public good is

A
  • goods which are prov. by MARKET
  • but partly funded by the state
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

List reasons why certain goods become quasi public goods

A
  1. Adverse Selection
  2. Positive externalities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Explain what adverse selection is

A

-contract with
-AV. Risk
-only accepted by those ppl who hv higher risk than average

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Explain why positive externalities result in quasi public goods

A

-society BEN. from them
-so, GOV. INTER.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Explain what externalities are

A
  • ext. effects
    -situations where:
    -ppl PROF. w/ paying
    -ppl DAMAG. w/ being party 2 transac. (w/ comp.)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Explain how we can establsih the hypothetical market for a public good using graph

A

-Some ppl are more willing that others to pay for a pub. good
-supply price is very high
-suff. demand only possible when demands of different groups added up
-Non-rivalrous
-DemandA(DA) = poories
-Demand(DB)= richies
-so u add them up together= DA + DB
-Point where DA + DB and sup. curve intersect is price where both groups are acc. 4
-but, none of these groups willing to pay this
-SO, HAVE TO PAY

14
Q

TRUE or FALSE, in the hypothetical market for public goods, equilibrium price can be met by combing the demands of the wealthier and less wealthy

A

-FALSE
-none of them are willing to pay the price
-have to cover cost with tax.

15
Q

Explain the graph on positive externalities when it comes to free-riders

A
  • Free riders benefit without paying for the good
    -willing to pay for good but not at price provided, (lower price)
    -but still consider to reap the rewards
    -market only considers demands of paying customers
    -but if u add the demand of both paying customers and non paying customers, find opt. quant.
    -intersec. of (collective) dem. + supply
    -in actuality, underproduc.
16
Q

Explain the negative externality graph

A

-TWO Supply curves
-producer’s version of marginal cost curve (sans social cost)
-costs incl. social costs
-Externality is triangle which repre

18
Q

Explain what the Coase Theorem is

A
  • when there is a neg. extern. -+ no trans. costs
    -parties can neg. freely for low. cost for damages–> most eff. outcome
    -regardless of assig. of prop. rights
19
Q

List the preconditions for Coasean Theorem

A

-Niet (or low) Transac. Costs
-NO pub. goods involved
-Moolay 2 (parties hv) compensate
-PROP. RIGHTS assigned

20
Q

TRUE or FALSE: once property rights are assigned, companies may negotiate for “more” rights

A

TRUE: trading “property” rights
(Think EU Emissions schemes)

21
Q

List ways of internalising externalities

A

STATE INTERVENTION
-Taxes (e.g: gasoline cars)
-(could be interchangeable with abv) Subsidies (e.g: electric cars)
-Dir. regu. (only elect. cars can be used after 2050)
-Liability Law

22
Explain what strict liability is
- The party is liab. 4 damage - reg. of PRECAUT. taken + -FAULT
22
Explain the taxation curve
-don't forget to ask nana banana - internalising the externalisaties through taxation -TAX= vertical distance between FC (the p. on supp. curve which aligns vertically with the price w/ social costs + equilibrium point for including social costs)
23
Explain what asymmetric information is
- difference in information of what part. in a transaction know
24
Explain what imperfect inform. is
-when part. do not hv all the info they need - 2 conduct REAS. transaction
25
Explain what a 'cascade of consequences' is
- reser. price (willingness of a pot. consumer 2 pay, decreases bcus know they're more likely 2 get a bad car) -LOWER prices--> even for good cars -therefore, own. of good cars hv an incentive 2 keep cars rather than sell at SUBOP. prices -w/ good quality cars, ave. quality of cars decl. furthers (in the 2nd hand market)
26
TRUE or FALSE: asymmetric information reduces average quality of goods
TRUE! -Cascade of consequences
27
Expain ways of addressing information asymmetries
- Potential Solutions -Regu. + Self- regu. - truthful communication -e.g: warranty (for used car) -relev. dipl. as ability signal -brand names as qual. sig.
28
Explain the effect of minimum price on revenue
1. ELASTIC DEMAND -price increases but demanded quantity decre. strongly -producer receives less revenue, 2. INELASTIC DEMAND -price incr. but demand. quantity barely decr. -produ. gets MORE revenue, cus min. price -
29
Explain windfall profits
-profits you make for getting something for free (e.g: license to emit) -but have to use them -opportunity costs passed thru consu.
30
Explain how monopolists maximise profit
- FIND point where MR=MC -increase price till intersect. with demand curve