1.3.3 Public Goods Flashcards
What is a Private good?
A private good is one which firms are able to provide to generate a profit. They are excludable and rivalrous.
What is a Public good?
A public good is one which is beneficial to society but will not be provided by private firms because they are non-excludable and non-rivalrous.
What is non-excludability?
The inability of private firms to exclude certain customers from using their product.
What is non-rivalry?
The inability of the product to be used up, so there is no competitors to drive up prices and generate profit. So governments provide them.
What is the ‘free rider’ problem?
If a firm decided to provide public goods anyway. When customers realise they can still access goods without paying. They then stop paying and still enjoy the benefits. Other customers then see this and stop paying. Finally, firms will stop providing them and they will be under-provided.
