1.3.3 Public goods Flashcards
a private good
- opposite of public goods
- a good which possesses the characteristics of rivalry (once consumed, it cannot be consumed by any one else) and excludability (it is possible to prevent someone else from consuming the good). Public good or pure public good - a goods
- characterised as goods which firms are able to provide to generate profits bc the goods are 1. excludable and 2. rivalrous in consumption.
rivalrous
- It is a good where consumption by one person results in the good not being available for consumption by another.
- Customers can also compete for these goods which are limited in supply and this rivalry helps to generate profits for firms
– For instance, if you eat a bowl of muesli or a chocolate, then your friend can’t eat it; if a firm builds a plant on a piece of land, that land is not available for use by local farmers.
excludable
Private goods are also excludable. Once provided, it is possible to prevent others from using it.
- 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
- For example, football clubs can prevent fans from seeing a game at their stadium by allowing only ticket holders to enter.
a public good
- opposite charactertistics of private goods
- are goods that are beneficial to society but which will not be provided by private firms due to the characteristics of 1. non-excludability and 2. non-rivalry
- govs will often provide these beneficial goods themselves, and so they are called public goods
when do public goods occur?
some goods may not be produced at all through markets, despite offering significant benefits to society, where this occurs is known as a, ‘missing market’ and the goods are called public goods.
- these goods involve elements of collective consumption like national defence and criminal justice system.
non - rivalry
consumption of the good by one person does not reduce the amount available for consumption by another person; aka, non-diminishability or non-exhaustibility.
- so basically more people can consume a good and enjoy its benefits and the amount available to others will not reduce. its not diminishable bc inablity to.
- so there is no competitive rivalry in consumption to drive up prices and generate profits for firms
non - excludability
once provided, no person can be excluded from benefiting; equally, no person can opt out of receiving the good, which is known as non-rejectability.
- 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
non-diminishability or non-exhaustibility.
aka non-rivalry
- once provided, it is impossible for any economic agent not to consume the good.
examples of public goods
Goods which can be argued to be public goods are:
defence, the judiciary and prison service, he police service, street lighting. Many other goods, such as education and health, contain a small public good element.
what is the one very distinct feature that distinguishes between a private and public good?
Public goods are also different from private goods because the marginal cost (the extra cost) of providing a unit of the good is zero.
In the case of public goods, once the good is provided, one person’s use or consumption of it does not reduce its availability for others. In other words, the consumption of a public good by one individual does not diminish its utility or availability to others in the community. This non-rivalrous nature means that the marginal cost of providing an additional unit of the public good is effectively zero.
Non-rejectability
once provided, it is impossible for any economic agent not to consume the good.
the free rider problem
market mechanism
market mechanism refers to the process through which the forces of supply and demand interact in a market economy to determine prices and allocate resources.
what would happen if the provision of public goods were left to the market mechanism?
If the provision of public goods were left to the market mechanism, there would be market failure. this is bc of the free ride problem
does a public good provide an incentive to pay for consumption?
problem. A public good is one where it is impossible to prevent people from receiving the benefits of the good once it has been provided. So there is very little incentive for people to pay for consumption of the good.
what is a free rider?
a person or organisation which receives benefits that others have paid for without making any contributions.
what is the problem of a free market and proving public goods?
In a free market, national defence (a public good) is unlikely to be provided. A firm attempting to provide defence services would have difficulty charging for the product since it could not be sold to benefit individual citizens. The result would be that no one would pay for defence and therefore the market would not provide it. The only way around this problem is for the state to provide defence and force everyone to contribute to its cost through taxation.
- so basically, in a free market public goods are under provided due to the free rider problem. once a pub good has been provided for one individual, its automatically provided for all and the market fails because it isnt possible for firms to withold the goods from those custimers who to refuse to pay for it, eg, national dedense and street pavements.
what does this non excludability aspect for publoc goods mean?
the price mechanism cannot develop as free riders will not pay. firms are reluctant to supply such a good in the free market as its difficult to gain any profits from it. the solutuon is for the givenremnt to provide public goods and fund them from general taxation.
what is a quasi - public good?
a good which does not perfectly possess the characteristics of non-rivalry and non-excludability and yet which also is not perfectly rival or excludable. (either or)
what can the problem of free riding be solved with?
quasi public goods or state to provide public goods and force everyone to contribute through taxation
examples of quasi public goods
- toll roads and bridges where access is restricted to paying users
- cable television services requiring subscriptions
- higher education institutions charging tuition,
