Ch. 9

• What is asymmetric information?

  A situation in which some participants in a market have better information about market conditions than others
• What is adverse selection in the context of insurance?

  A situation in which a person at risk is more likely to take out insurance
• How does moral hazard relate to insurance?

  A situation in which a person who has taken out insurance is prone to taking more risk
• What is a merit good?

  A good that brings unanticipated benefits to consumers, leading to underconsumption in a free market
• What defines a demerit good?

  A good that brings less benefit to consumers than they expect, leading to overconsumption in a free market
• What characterizes a private good?

  A good that, once consumed by one person, cannot be consumed by somebody else
• What does non-excludability mean?

  A situation in which it is not possible to provide a product to one person without allowing others to consume it as well
• What is non-rivalry in terms of goods?


  A situation in which one person’s consumption of a good does not prevent others from consuming it as well
• What defines a public good?

  A good that is non-exclusive, non-rivalrous, and non-rejectable
• What does non-rejectability refer to?

  A situation in which an individual cannot avoid consuming a good
• What is the free-rider problem?

  When an individual cannot be excluded from consuming a good, leading to no incentive to pay for its provision