everybody marry and America's are another source of market failure let's go through them here start with Mary good Americans are goods that are deemed to be more beneficial to consumers than they realize important to know that this is a normative consideration decided by politicians here but more beneficial to consumers than they realize clearly there is imperfect information at the heart of this market failure that isn't that if consumers don't fully understand just how good these mary goods are for them it must be information gaps which are at the heart of the issue so we dissect imperfect information there might be information failure where the information maybe is just not present at all maybe the information is not clear and maybe consumers are choosing to ignore the information that's the information failure maybe so information failure when there is a problem with the information here which might mean that consumers don't fully understand the benefits of Mary goods or maybe there's asymmetric information where the information does exist but it's not shared equally between two parties also Mary Goods often will generate positive excellencies in that consumption if we look at some examples here it's very clear to see how both imperfect information and positive externalities and consumption can exist America's you got healthcare education exercise health care and education of the two classic merit goods but things are exercising healthy eating so fruits and vegetables so the panels all of these things will come into the merit of good category as well but take education as as our example here can you argue there is imperfect information with education for sure individuals will understand I'm sure the benefits of consuming education so students but they might not understand just how good consuming education is to them because the benefits of consuming education will accrue in the future so individuals might maybe under report the importance of education for higher incomes and better living standards in the future they're not exactly just how much their incomes are going to increase if they consume education properly they really go for it I got the high grades they go to the universities that might lead to irrational decisions of consumers are under consuming education here add to that the fact that consuming education generates positive X artists and consumption we get to this conclusion that education as a very good Americans generally will be under consume and under produce in a free market so how do we show that on a diagram well the issue here is that the private benefits are going to be lower than the full social benefit here the social benefit is greater because social benefit will include the full information for consumers the idea that consumers will be making rational decisions to consume at the right level but also will include any external benefits any positive externalities in consumption so marginal social benefit is going to be higher than marginal private benefits and there's a marginal private benefit a marginal social benefit is going to be way over here there is no issuing production so we've got MSC which equals and PC which equals our supply the micro allocate scarce resources of the private optimum where NPC cuts MPB here that's Q 1 and that's p 1 or a society would like resources to be allocated at the social Ottoman and that's where ms b equals MSC and that gives us P star and Q star we can clearly see here and under consumption and under production America's and that leads to a loss a loss when we've looked at as well a loss before and there is the love a loss to society as a result so the key thing for you to note is that information failure is at the heart of this market failure as well as there being positive X and is in consumption make sure you use the phrase irrational decisions being made by consumers to under consume because they may lack the information can we do the same kind of thing for D America is absolutely Saudi Mary goods are deemed more harmful to consumers than they realize they gain a normative consideration but the reason they are more harmful than consumers realize is because again there is imperfect information at the heart of this market failure again that could be information failure where maybe the information is not present maybe it's not clear maybe has been ignored or maybe there is asymmetric info certainly could well be the case with D Mary Goods that producers have the information but are choosing not to share it perfectly with consumers asymmetric information problems there there may also be negative excellencies in the consumption of the Americas take the classic examples with cigarettes alcohol gambling also comes to mind yet where individuals again they may know that it's not good for them but they might not know just how bad it is for them to cigarettes individuals that smoke may not know just how bad cigarettes are for them in terms of the likelihood of causing lung cancer and just what the probability is that men like that information perfectly and therefore may be irrational decisions to over-consume D marry goods cigarettes in this case add to that that there are negative x antes in the consumption of d Americas and we get to the conclusion that in a free-market demerit goods are over consumed and they are over produced how do we show that diagrammatically while the private benefits are going to be greater than the social benefit here the issue is in consumption so as those two curves that will differ so the social benefit is clearly going to be less because the social benefit will include the true private benefit when there is full information are just how bad these demerit goods are but it will also include any negative external benefits here so any negative impacts on third parties which will pull down social benefit so on a diagram we are gonna have two curves like that this one is going to be the marginal private benefit but the marginal social benefit is going to be melih no issue in production so MSC equals MPC which equals supply the free market with allocate scarce resources where MP v equals at MPC so that's q1 there and that's p1 there where society we like scarce resources to be allocated at the social optimum that's where MSB equals at NSC and that's Hugh Starr and that's P stuff so it's very clearly see there is an overconsumption here at the Americans and an overproduction of them and that will lead to a war I lost in the welfare loss is this triangle here as we've learned in previous video so we can label that the welfare loss so that is the issue when it comes to the Americas over consumed over produced generating welfare loss that's the misallocation of resources right here whereas Americas the misallocation of resources was an under consumption and an under production too few resources being allocated there too many resources being allocated there and we get Marquis phase but remembers information issues imperfect information at the heart of the market things in each case thank you so much for watching guys I'll see you all on the next video