Public Goods, Externalities and Information Asymmetries Flashcards
(34 cards)
List sources of market failures
- imperfect compet.
-pub. goods
-external.
-info. asyymettrics
Explain what an exclusive good is
- a person can be prev. from
-consum. good
-by another person
Explain what a rivalrous good is
- if a person cons. a good
-another person cannot cons. the same good OR
-less availab. 2 other people
Explain what a public good is
- not EXCLU.
-not RIVAL.
TRUE or FALSE: the justice system is a public good
- TRUE
-Not. Excludable:
- Can’t exclud. ppl from using it
-Non-rivalrous:
-hving access 2 it, doesn’t mean less ppl hv access
Explain what a club good is
-Excl.
- + Non-rival.
Explain what a common pool/ resources good is
-Non-exclusive
-Rivalrous
Explain what private good is
- good which is:
-exclusive- rival.
Explain what the tragedy of the commons is
- 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
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
-fish. licenses + quotas
Explain what a quasi public good is
- goods which are prov. by MARKET
- but partly funded by the state
List reasons why certain goods become quasi public goods
- Adverse Selection
- Positive externalities
Explain what adverse selection is
-contract with
-AV. Risk
-only accepted by those ppl who hv higher risk than average
Explain why positive externalities result in quasi public goods
-society BEN. from them
-so, GOV. INTER.
Explain what externalities are
- ext. effects
-situations where:
-ppl PROF. w/ paying
-ppl DAMAG. w/ being party 2 transac. (w/ comp.)
Explain how we can establsih the hypothetical market for a public good using graph
-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
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
-FALSE
-none of them are willing to pay the price
-have to cover cost with tax.
Explain the graph on positive externalities when it comes to free-riders
- 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.
Explain the negative externality graph
-TWO Supply curves
-producer’s version of marginal cost curve (sans social cost)
-costs incl. social costs
-Externality is triangle which repre
Explain what the Coase Theorem is
- 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
List the preconditions for Coasean Theorem
-Niet (or low) Transac. Costs
-NO pub. goods involved
-Moolay 2 (parties hv) compensate
-PROP. RIGHTS assigned
TRUE or FALSE: once property rights are assigned, companies may negotiate for “more” rights
TRUE: trading “property” rights
(Think EU Emissions schemes)
List ways of internalising externalities
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
