9708 · 1.6
Classification of goods and services flashcards
Revision flashcards for Cambridge 9708 Classification of goods and services (syllabus 1.6). Flip, recall, then mark a real past-paper question.
Card
What makes a good a private good?
Rival (one person's use reduces availability) and excludable (non-payers can be excluded) — e.g. food, clothing.
Card
What makes a good a public good?
Non-rival and non-excludable — one person's use does not reduce others' use; free-rider problem prevents market supply.
Card
What is a merit good?
A good underconsumed because consumers undervalue long-term benefits — e.g. education, vaccinations; positive externalities.
Card
What is a demerit good?
A good overconsumed because consumers ignore harm — e.g. tobacco, sugary drinks; negative externalities.
Card
Why do markets underprovide public goods?
Free-rider problem — individuals benefit without paying, so firms cannot profitably supply them.
Card
Give an example of a quasi-public good.
Roads or parks — may be non-rival at low use but become rival when congested; often partly excludable via tolls.
Card
What are the two key characteristics used to classify goods based on their consumption properties?
Rivalry and Excludability.
Card
Define a pure public good using its two characteristics.
A good that is both non-rivalrous (one person's consumption does not prevent another's) and non-excludable (it is not possible to prevent non-payers from benefiting).
Card
What is the 'free-rider problem'?
The situation where an individual can benefit from a good or service without paying for it. This disincentivises private firms from providing public goods, leading to market failure.
Card
What is the primary economic reason for the under-consumption of merit goods?
Information failure, where consumers do not fully perceive the long-term private benefits of consumption (e.g., higher future earnings from education).
Card
Give two distinct government policies to reduce the consumption of demerit goods.
1. Indirect Taxation (e.g., excise duties on tobacco) to increase the price. 2. Regulation (e.g., age restrictions on alcohol) or banning advertising.