Public goods, externalities, market failure Flashcards
(22 cards)
What is a public good?
good or service
consumed simultaneously by everyone
no one can be excluded
What does it mean when it can be consumed simultaneously
does not reduce quantity
non-rival
A good is non-excludable if it is
impossible or extremely costly to prevent someone from benefiting from a good
What are the 4 classifications of goods?
Private good
Natural monopolies
Common resources
Public good
What are the characteristics of a private good?
rival
excludable
What are the characteristics of common resources
rival
non-excludable
What are the characteristics of natural monopolies
non-rival
excludable
What are the characteristics of public goods
non-rival
non-excludable
Because of what problem, then private firms do not want to produce public goods?
free-rider
What is the free-rider problem?
no private company wants to produce a public good. No incentive
Quantity of the good a person is able to consume is not influenced by the amount the person pays for the good
What is the significance of the free-rider problem
government has to take over to produce it
A free rider is a person who
consumes a good without paying for it
What helps to pay for public goods
taxes
An externality is a
consequence of an economic activity
spills over affect third party
A negative externality imposes an
external cost
A positive externality provides an
external benefit
An externality arises from
production
consumption
Marginal Private Cost is represented by the
supply curve. firm’s POV.
Marginal private benefit is presented by the
demand curve
What is MSC
marginal cost incurred by the entire society
What is MEC
marginal external cost. cost of producing an additional unit of good that falls on people instead of producer
When MSC=MSB, what is it called
socially optimal output
efficient amount
