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AQA Economics AS Mon 14 June AM watch

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    (Original post by deianra)
    I put that in the first post. But its real definition I was told, was still that the consumer does not realise its full benefits. That is a merit good. However, it does produce positive externalities which is why its beneficial to society. Difference.
    who cares about the definition :rolleyes: i can define it as a chocolate cake i want!¬ :eek:
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    (Original post by Mysticmin)
    the one which shows welfare loss if not consumed up to the socially optimal level. No idea which one you got given.
    that can be shown from the positive externality graph cant you? with the smc and the smb and pmb
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    (Original post by TheWolf)
    that can be shown from the positive externality graph cant you? with the smc and the smb and pmb
    yup, i actually have a drawing of the positive externalities one that I did just now for you but it's too large for ukl so you'll have to come get it off msn
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    (Original post by Mysticmin)
    yup, i actually have a drawing of the positive externalities one that I did just now for you but it's too large for ukl so you'll have to come get it off msn
    thanks
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    Okay. So to clarify:

    'What is a merit good?'

    A merit good is a product that gives larger benefits to the consumer than the consumer realises. These goods are deemed socially desirable by the state as they generate many positive externalities to society. However, there is underconsumption as the consumer is not fully aware of all the benefits that exist, both privately and socially, and so would only consume up to where private benefit is equal to private cost. The socially optimum level though, is where marginal social benefit is equal to marginal private cost and this needs to be provided by the government.

    Insert positive externality MSB + MPB against MPC diagram.
    -----------------------------

    One question though - the one where you ignored

    It's not because as a merit good they consume even less than a good which gives positive externalities. They don't even consume up to private benefit = private cost (positive externality, external benefits not realised).

    It's because they don't even consume up to that amount.

    They consume up to where private benefit they think exist = private cost. Not real private benefit = private cost, as not full private benefits are realised.
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    (Original post by deianra)
    One question though - the one where you ignored

    It's not because as a merit good they consume even less than a good which gives positive externalities. They don't even consume up to private benefit = private cost (positive externality, external benefits not realised).

    It's because they don't even consume up to that amount.

    They consume up to where private benefit they think exist = private cost. Not real private benefit = private cost, as not full private benefits are realised.
    You're confusing me now! A merit good is a good which gives positive externalities. Private benefit does not encompass the positive externalities. In the diagram positive externalities is the vertical distance between the line labelled PMB and the line labelled SMB.

    Though I see where you're coming from. With the american healthcare system individuals may only see a doctor if they have a fatal illness. For less serious ailments they may just take sick days off to get better (loosing wages and causing the economy to loose output). The personal benefit they missed were the wages lost. However these wages were probably less than the cost of a doctors bill so PMC is still greater than PMB.
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    merit good - with rival and excludable characteristics, when left to free market - it is underconsumed
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    (Original post by Mysticmin)
    You're confusing me now! A merit good is a good which gives positive externalities. Private benefit does not encompass the positive externalities. In the diagram positive externalities is the vertical distance between the line labelled PMB and the line labelled SMB.

    Though I see where you're coming from. With the american healthcare system individuals may only see a doctor if they have a fatal illness. For less serious ailments they may just take sick days off to get better (loosing wages and causing the economy to loose output). The personal benefit they missed were the wages lost. However these wages were probably less than the cost of a doctors bill so PMC is still greater than PMB.
    Ah! We define merit good as a good which the consumer does not realise the full private benefits of it. It is only similar to a good with positive externalities because it generates them. However difference is that:

    Merit good underprovided because full private benefits not realised.

    Positive externality underprovided because external benefit not realised.

    In reality, they are similar because a merit good produces positive externalities but a good with positive externalities is not always a merit good.
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    (Original post by deianra)
    Ah! We define merit good as a good which the consumer does not realise the full private benefits of it. It is only similar to a good with positive externalities because it generates them. However difference is that:

    Merit good underprovided because full private benefits not realised.

    Positive externality underprovided because external benefit not realised.

    In reality, they are similar because a merit good produces positive externalities but a good with positive externalities is not always a merit good.
    Never mix exam boards No one's answered my unit 5 quesiton yet :mad: Are there no A2 economics students on this forum...
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    (Original post by deianra)
    I am panicking so much about this. So much more than I did for Chemistry even though am rubbish at Chem

    I can't do this! Dammit, going to scream or summat in a minute.
    <Mysticmin uses copious amounts of swear words to express her feelings about a particular tax system question> I know how you feel... You're not rubbish at chem you're not rubbish at anything, chin up! If you find it hard think of what the other 85% of the population think...
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    (Original post by deianra)
    I am panicking so much about this. So much more than I did for Chemistry even though am rubbish at Chem

    I can't do this! Dammit, going to scream or summat in a minute.
    I'm with edexcel too, and I've always been taught to define merit goods as good which are underconsumed (i.e. not even up to the private benefit) because the person does not realise how good they are for them. Now I'm confused too, but in my mind merit goods create positive externalities and are underconsumed, but often they are not consumed up to the correct private level, never mind the social level. Arghhhh! My brain hurts!
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    (Original post by Ellie4)
    I'm with edexcel too, and I've always been taught to define merit goods as good which are underconsumed (i.e. not even up to the private benefit) because the person does not realise how good they are for them. Now I'm confused too, but in my mind merit goods create positive externalities and are underconsumed, but often they are not consumed up to the correct private level, never mind the social level. Arghhhh! My brain hurts!
    YES! SOMEONE WHO AGREES WITH ME!

    Which diagram do you use?

    The MPB+MSB/ MSC diagram or Average revenue + Average revenue2/Marginal cost
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    (Original post by Ellie4)
    I'm with edexcel too, and I've always been taught to define merit goods as good which are underconsumed (i.e. not even up to the private benefit) because the person does not realise how good they are for them. Now I'm confused too, but in my mind merit goods create positive externalities and are underconsumed, but often they are not consumed up to the correct private level, never mind the social level. Arghhhh! My brain hurts!
    Oh and I'm right in thinking we don't need to know any of this Keynesian/Monetarist malarky, yes?
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    According to stanlake, my economics bible...

    Merit goods are products which the government regards as beneficial and will be under-consumed if left to market forces.

    external benefits/positive externalities are beneficial effects on thrid parties for which they do not pay.

    This was fuzzy in my mind last year, didn't affect my edexcel exam too badly.
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    (Original post by deianra)
    YES! SOMEONE WHO AGREES WITH ME!

    Which diagram do you use?

    The MPB+MSB/ MSC diagram or Average revenue + Average revenue2/Marginal cost
    Well I don't think the first one's really applicable, because it's not just about the positive externalities they create, it's about the individual not realising how good for them they are, so I'd be inlcined to used the average revenue one. I have this little Heinemann book, and that's the one they say to use.
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    (Original post by deianra)
    Oh and I'm right in thinking we don't need to know any of this Keynesian/Monetarist malarky, yes?
    Nope none of that thank god
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    (Original post by Ellie4)
    Well I don't think the first one's really applicable, because it's not just about the positive externalities they create, it's about the individual not realising how good for them they are, so I'd be inlcined to used the average revenue one. I have this little Heinemann book, and that's the one they say to use.
    I have that one! Do you think it's a grammar schools conspiracy? I'm so happy! Everyone else thinks I'm tlaking rubbish!

    Exactly. But because they also generate positive externalities, it is applicable? I'm thinking of drawing both?
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    (Original post by deianra)
    I have that one! Do you think it's a grammar schools conspiracy? I'm so happy! Everyone else thinks I'm tlaking rubbish!

    Exactly. But because they also generate positive externalities, it is applicable? I'm thinking of drawing both?
    Heh, the little Markets and market failure one? Grammar schools eh :rolleyes: I don't know which one to draw really, time would be too tight for both really, you wouldn't get marks to warrant doing it. Then again, we've not really gone over the average revenue diagram in my school much. I might see if I can find some mark schemes for papers which have asked for a merit good diagram.
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    (Original post by deianra)
    I have that one! Do you think it's a grammar schools conspiracy? I'm so happy! Everyone else thinks I'm tlaking rubbish!

    Exactly. But because they also generate positive externalities, it is applicable? I'm thinking of drawing both?
    ?? Revenue curves for positive externalities / merit goods???!
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    (Original post by corey)
    ?? Revenue curves for positive externalities / merit goods???!
    That's right

    Revenue of benefits.

    Average revenue1 + Average revenue 2 versus marginal cost.

    The consumer believes the benefit of the good will be at AR1 so market equilibirum at P1 and Q1. However, the real benefit is at AR2 leading to Q2 and P2.
 
 
 
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