1.3.3 - Public Goods

Question 1

Name two types of goods

Answer 1

. Private Goods

. Public Goods

Question 2

Qualities of Private Goods

Answer 2

. Rivalrous

. Excludable

Question 3

Qualities of Public Goods / Pure Public Goods

Answer 3

. Non - Rivalry / Non - diminishability

. Non - Excludability

. Marginal cost (the extra cost) of providing a unit of the good is zero

Question 4

Define Rivalrous

Answer 4

. When consumption of a good by one person results in the good not being available for consumption by another

E.g. If you eat pasta, friend can’t eat pasta.

E.g. If firm build hotel on piece of land, farmers cant use it

Question 5

Define Excludable

Answer 5

. Possible to prevent others prom using it

E.g. Football clubs can prevent fans from seeing a game by only allowing ticket holders

Question 6

Define Non - Rivalry

Answer 6

. Consumption of the good by one person does not reduce the amount available by another person

Question 7

Define Non - Excludability

Answer 7

. No person can be excluded from benefiting, no person can opt out from receiving the good, which is known as non - rejectability

Question 8

Define Non - Rejectability

Answer 8

impossible for any economic agent to not consume the good

Question 9

Examples of Public Good

Answer 9

. Defense

. Street Lights

. Roads

. Law Enforcement

Question 10

Examples of Private Good

Answer 10

. Airplane rides

. Football matches seats

. Cellphones

. Dining reservation table

Question 11

Define Free Rider

Answer 11

. A person or organisation which receives benefits that others have paid for without making any contribution

Question 12

Explain the Free Rider Problem (for public goods)

Answer 12

. If provision of public goods were left to market mechanism there would be market failure, due to the free rider problem

. This would occur in a free market and lead to the under - provision of public goods (e.g. defence)

. A public good is one where it is impossible to prevent people from receiving benefits once provided, meaning there’s little incentive for someone to pay for consumption as they want to improve their economic welfare by not paying for it

Question 13

Main way to solve Free Rider Problem

Answer 13

. Taxation to contribute money towards public goods and services

Question 14

Define Quasi - public good / Non - Pure public goods

Answer 14

. Have characteristics of both private and public goods

. A good that is not perfectly non - rival and non - excludable and yet not perfectly rival and excludable

. Tend to be non - rival and also excludable (refer to examples)

. Remember Quasi means ‘somewhat’

Question 15

Examples of Quasi - Public Goods / Non - Pure Public goods

Answer 15

. Motorists can be made to pay a toll for using a road

. Television viewers can be forced to buy subscriptions because reception is encoded.

. Ships entering a port can be forced to pay taxes for the upkeep of lighthouses