Market Failure Essay

923 WordsMar 2, 20154 Pages
Market Failure a) Carefully distinguish between merit goods, demerit goods and public goods. - A merit good is a socially desirable good or service and it has positive externalities and will therefore be underprovided in the free market. The idea of a merit good is simply an extension of positive externalities. Examples of merit goods are street lights, park benches and roads. - A demerit good is something that is the opposite of a merit good. It has negative externalities and it not as sociable desirable. Just like merit goods, demerit goods are en extension of externalities, negative ones in this case. - A public good is non rivalries and non excludable. It can be consumed by many individuals at no extra additional cost at no concerned reduction of the quality and the quantity provided. Merit goods and demerit goods are both public goods. The difference in public and merit/demerit good is that public are for example non rivalrous and non excusable and merit and demerit are. Merit goods are private goods that are enjoyed by people and have positive externalities (positive externalities occur when the consumption or production of a good causes a benefit). But because it is so desirable and wanted the market will provide less of it. It could also be that People do not realize the true benefit. For example, people underestimate the benefit of education or vaccinations. If a good like that would have a lot of positive externalities then the government might get rid of the market providing it and provide it directly. But if the goods would become free and too much wasteful that the price would become limited. A solution to this then could be to offer goods for free but to limit the supply. Demerit goods are as before mentioned private goods with negative externalities which mean that they are undesirable. Negative externalities occur when the

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