externalities

Factors whose benefits (called external economies) and costs (called external diseconomies) are not reflected in the market price of goods and services. Externalities are a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party. Externalities are an important consideration in cost-benefit analysis.

Public goods

Public goods are ones that when consumed by one person can be consumed in equal amounts by the remainder of society

Examples are National defense, the police service, street lighting, light houses and more 2 properties: non-rivalry and non-excludability Non rivalry: One persons use of the public good does not deprive any other person of such use or does not diminish the amount available to others

Non excludability: When the public good is provided to one person, it is not possible to prevent others from enjoying its consumption

market will under-produce such goods or not produce them at all

Merit goods

Deemed to be socially desirable Likely to be under-produced and under-consumed Not necessarily in sufficient quantities to maximize social welfare Benefit: Individual and communal (strong positive externalities)

Diagram: Provided by Government Financed by Taxation Examples: Health, Education, Housing

Demerit goods

Over produced and over consumed Negative externalities Diagram: Price = social marginal cost = social marginal benefit.

Examples are cigarettes, alcohol and addictive drugs Consumption of demerit goods imposes considerable negative externalities on society as a whole

Merit goods business dictionary Goods or services (such as education and vaccination) provided free for the benefit of the entire society by a government, because they would be under-provided if left to the market forces or private enterprise. A good which is considered unhealthy or damaging in some way. A demerit good can be physically harmful (cigarettes), mentally harmful (gambling), or morally harmful (prostitution). In many cases, demerit goods are subject to additional taxes in an effort to reduce consumption; these taxes are frequently known as sin taxes. market failure

Situation where resources cannot be efficiently allocated due to the breakdown of price mechanism caused by factors such as establishment of monopolies

Externalities are the spill over effects of a transaction which extend beyond the parties to the transaction and affect society as a whole. . In other words, externalities are the differences between the private and the social costs, or benefits arising from an activity. Externalities can be of 4 sorts: Positive externalities in consumption where the benefits of consumption extend beyond the original purchaser. For example a newspaper which is bought and read but then left in public place for others to read. Positive externality production: the production process generates benefits to people beyond those involved in the original buying and selling. For example farmers working the land for crops also provide an attractive landscape two walk through. Negative externality in consumption: occurs when the buyers consumption of the product reduces the welfare of thr for example the noise from someone riding a large motorcycle through a quiet village Negative externality in production: the social costs of production exceed the private costs. For example the pollution falling on a town from factory chimney.

Public goods : goods which by their nature are hard to exclude the general public from enjoying without having volunatarily paid for them.