1.3 - Public goods

Question 1

How are private goods characterised?

Answer 1

1) Rivalry:
Consumption by one individual reduces the availability of the good for others.
2) Excludability:
Producers or sellers can prevent individuals from consuming the good if they do not pay for it

Question 2

How are public goods characterised?

Answer 2

1) Non-Rivalry: Consumption by one individual does not reduce the availability of the good for others; it is “non-depletable.”

2) Non-Excludability:
It is difficult or costly to prevent individuals from benefiting from the good, regardless of whether they pay for it.

Question 3

Why do private sector firms produce private goods?

Answer 3

Private goods are goods which allows firms to produce to generate profits.
> They can generate profits as these goods are excludable and rivalrous

• The firm is able to exclude certain customers from purchasing their goods through use of the price mechanism.
  If customers cannot afford to buy them, then they are excluded
• Customers can also compete for these goods which are limited in supply and this rivalry helps to generate profits for firms

Question 4

Why Public Goods May Not Be Provided by the Private Sector…

Answer 4

• Free rider problem
  > occurs when individuals can benefit from a public good without having to pay for it.
  > since it is difficult to exclude non-payers, individuals may choose not to pay for the good, assuming that others will pay and they can still enjoy the benefits.
  > however over time, any customers who are paying for the goods may stop
  > this leads to underfunding or underproduction of public goods in the private market.

Question 5

Role of the government in regards to public goods…

Answer 5

• Governments often intervene to provide public goods because they are unlikely to be adequately supplied by the private sector.
• Governments can finance public goods through taxation, ensuring that everyone pays their fair share.

Question 6

Quasi-public goods

Answer 6

• Goods that exhibit characteristics of both public and private goods.
• They may have elements of non-rivalry or non-excludability but not to the same extent as pure public goods.

Question 7

Examples of quasi public goods

Answer 7

public transportation, roads, parks, and libraries, which are accessible to everyone but may be rivalrous in consumption and partially excludable.