Understanding market failure: Public goods, Merit and demerit goods

Overview

Recall questions on Public goods, Merit and demerit goods.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What does it mean for a public good to be non-excludable?

   Model answer

   It is impossible to prevent non-payers from consuming the good.

2. 2

   What does it mean for a private good to be excludable?

   Model answer

   Non-payers can be prevented from consuming the good.

3. 3

   What is the key distinction between public goods and private goods?

   Model answer

   The distinction lies in their characteristics of excludability and rivalry in consumption.

4. 4

   How are public goods a form of market failure?

   Model answer

   Public goods cause market failure because the free rider problem prevents private firms from charging for them, leading to under-provision or non-provision by the market.

5. 5

   How does non-excludability create the free rider problem for public goods?

   Model answer

   Because non-payers cannot be excluded from consuming the good, people can benefit without paying, making it impossible for firms to charge for the good.

6. 6

   Why can firms not charge non-payers for public goods?

   Model answer

   Because public goods are non-excludable, firms cannot prevent those who do not pay from consuming the good.

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