1.18 Public Goods

Question 1

What are the key features of public goods?

Answer 1

Non rivalrous
Non excludable

Question 2

What are the key features of private goods

Answer 2

Rivalrous
Excludable

Question 3

What does non rivalrous mean?

Answer 3

Non rivalrous means that consumption of a product does not prevent another person from also consuming that product

Question 4

Give an example of a non rivalrous good

Answer 4

• A radio channel demonstrates non rivalry, because if one person listens to the programme it does not prevent another person from also listening to it
• However, the radio itself is a rival good as people compete to pay for that good

Question 5

What does non excludable mean?

Answer 5

It means that once a good is provided, it is impossible to stop people from using it

Question 6

Give an example of a non excludable good

Answer 6

• Once a lighthouse is provided, then ships at sea can’t be prevented from benefiting from it
• However, if a car manufacturer provides a new model of car, people can be excluded from purchasing one if they can’t afford one

Question 7

What is a quasi public good?

Answer 7

• It is one that has characteristics of both public and private goods
• This includes partial excludability and partial rivalry

Question 8

Give an example of a quasi public good

Answer 8

Roads (free but road tax)
Beaches (free but some activities are not)

Question 9

What is the free rider problem?

Answer 9

• It is a type of market failure that occurs because everybody is able to benefit from a particular good or service
• one of the main examples of this are street lights

Question 10

Why are free riders a problem?

Answer 10

• Because while not paying for the good, individuals may continue to use it
• Therefore, the good is likely to be under provided or not provided at all.
  This is what leads to the market failure and this leads to government intervention being needed

Question 11

Why are consumers able to free ride on public goods?

Answer 11

They can use them without having to pay for them

Question 12

Why does the free rider problem lead to market failure

Answer 12

No revenue is being generated

Question 13

Define social benefits

Answer 13

Social benefits is the total benefit to society from producing or consuming a good/service

Question 14

What is the equation for social benefits?

Answer 14

Private benefits + external benefits

Question 15

Define social costs

Answer 15

Social cost is the total cost to society from producing or consuming a good / service

Question 16

What is the equation for social costs?

Answer 16

Private costs + external costs

Question 17

When does the social optimum level of output occur

Answer 17

The social optimum level of output occurs when all external benefits and external costs are accounted for

Question 18

What will there be if external benefits are present?

Answer 18

There will be under production/ under consumption in a free market
Social benefit is greater than private benefit

Question 19

What will there be if external costs are present?

Answer 19

There will be over production / over consumption in a free market
The social costs are greater than private costs