1.3.3 Public goods Flashcards
What is a private good?
Private goods are goods which firms are able to provide to generate profits. They can generate profits as these goods are excludable and rivalrous.
What is a public good?
Public goods are goods that are beneficial to society but which will not be provided by private firms due to the principles of non-excludability and non-rivalry.
What does non-excludability mean?
Non-excludability refers to the inability of private firms to exclude certain customers from using their products. In effect, the price mechanism cannot be used to exclude customers e.g. street lighting.
What does non-rivalry mean?
Non-rivalry refers to the inability of the product to be used up, so there is no competitive rivalry in consumption to drive up prices and generate profits for firms.
What would happen if firms decided to produce public goods anyway?
If firms decided to provide these goods anyway, it would give rise to what is called the ‘free rider’ problem. This is a situation where customers realise that they can still access the goods, even without paying for them.
