Evaluating the Microeconomic Concept of Merit Goods

The video tutorial explores the concept of merit goods, which are underprovided and underconsumed in the market due to positive consumption externalities and imperfect information. It explains how these factors lead to market failure, represented by a deadweight loss. The tutorial emphasizes the importance of evaluating the size of market failure to propose effective solutions, such as government subsidies, while also considering the risk of government failure.

What is a key characteristic of merit goods in the market?

• They are always government-funded.

• They are underprovided and underconsumed.

• They have no external benefits.

• They are overprovided by the market.

What causes the divergence between marginal private and social benefit curves for merit goods?

• Market equilibrium

• Government subsidies

• Negative consumption externalities

• Positive consumption externalities

Which factor can increase the size of a positive consumption externality?

• Short-term benefits

• Immediate consumption

• Long-term societal impact

• High market prices

Why might further education have a larger externality compared to visiting a museum?

• It is more expensive.

• It has a greater long-term impact on society.

• It is more popular.

• It is less accessible.

How does imperfect information affect market failure in merit goods?

• It increases market failure.

• It eliminates externalities.

• It has no effect.

• It reduces market failure.

What is a potential consequence of government intervention to correct market failure?

• Elimination of all externalities

• Increased market efficiency

• Reduction in public spending

• Creation of government failure

Why is it important to evaluate the size of market failure in merit goods?

• To eliminate all subsidies

• To reduce government intervention

• To propose effective solutions

• To increase market prices