Public goods, information provision and regulation (Pack 11)

• What is the definition of 'state provision'?

  • State provision refers to goods and services provided by the government.
  • Aimed at ensuring access for all citizens.
• Why do public goods need to be state provided?

  They are non-excludable and non-rivalrous therefore firms will find the market non-profitable due to free riders
• Why are public goods underprovided in the free market?

  Free riders benefit without paying
• What is the definition of 'information provision'?

  • Information provision involves supplying data to consumers.
  • Aims to reduce information asymmetry in markets.
• What are two ways information may be provided to close information gaps?

  Advertising and public awareness campaigns.
• How can information provision address overconsumption, with the aid of a diagram ?

  By educating consumers on negative effects so the demand curve will shift left
• How can information provision address underconsumption, with the aid of a diagram?

  By informing consumers about benefits of the goods so the demand curve will shift right
• What are three ways information provision can correct market failure?

  1. Reducing information asymmetry.
  2. Encouraging informed consumer choices.
  3. Promoting competition among suppliers.

  • Effectiveness depends on:
  • Clarity of information.
  • Accessibility of information.
  • Consumer engagement.
• What are three drawbacks of information provision as a tool for correcting market failure?

  1. Information overload can confuse consumers.
  2. Misinformation can lead to poor decisions.
  3. Limited reach may exclude some consumers.

  • Effectiveness depends on:
  • Quality of information.
  • Target audience understanding.
  • Delivery methods used.
• What is the definition of 'regulation'?

  Regulation refers to rules set by authorities to determine the behaviour of firms
• Give an example of a regulation.

  Minimum wage laws protect workers' rights.
• What are three pros of regulations to fix market failure?

  They protect consumers, ensure fair competition, and promote safety.
• What are three cons of regulations to fix market failure?

  They can increase costs, reduce efficiency, and limit innovation.
• What is a general disadvantage of regulations regarding resources?

  They require numerous resources and costs
• What happens if regulatory conditions are too lax?

  Products will be oversupplied and over consumed
• What are the potential consequences of overly tight regulatory conditions?

  Loss of jobs and harmful industry effects
• What might individuals or businesses do if regulations are too strict?

  Operate illegally to avoid the law
• What term describes the potential outcome of strict regulations leading to illegal operations?

  Informal economy
• What is a general advantage of regulations regarding clarity?

  Most rules are easy and clear to understand
• How can regulations help overcome information failure?

  By making activities compulsory or illegal
• How do regulations target externalities compared to taxes?

  They target the externality directly
• What can regulations do to those causing external costs?

  Fine them to compensate third parties
• What are the general disadvantages of regulations?

  • Require monitoring and enforcement resources
  • May be too lax, leading to oversupply
  • Can be too tight, causing job losses
  • May lead to illegal operations and informal economy
• What are the general advantages of regulations?

  • Rules are easy and clear to understand
  • Overcome information failure by making actions compulsory or illegal
  • Target externalities directly
  • Fine those causing external costs to compensate third parties