ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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non-rival with positive externalities in consumption.
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rival with positive externalities in production only.
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non-excludable with positive externalities in production.
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excludable with positive externalities in consumption.
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Detailed explanation-1: -A merit good is a good which when consumed provides external benefits, although these may not be fully recognised – hence the good is under-consumed. Examples include education and healthcare. As can be seen, when a merit good is consumed it generates positive externalities.
Detailed explanation-2: -A merit good can be defined as a good which would be under-consumed (and under-produced) by a free market economy, due to two main reasons: When consumed, a merit good creates positive externalities (an externality being a third party/spill-over effect of the consumption or production of the good/service).
Detailed explanation-3: -Positive externalities of consumption is when an individual or firm consumes a good or service, and this action provides a benefit to an unrelated third party.
Detailed explanation-4: -Healthcare is classified as a merit good because consuming it provides benefits to others as well as to the individual consumer.