1.3.3 Public Goods Flashcards
Define Public Goods
Goods that have 2 key characteristics;
- Non-rivalrous
- Non-excludability
What does Non-rivalrous mean?
This means that consumption by one person does not limit consumption by others
i.e.
The benefits to others is not reduced by one person’s consumption
What does Non-excludability mean?
This means that if a good is available for one person, then it is available for everyone
i.e.
It is impossible to prevent or exclude anyone from using it
Private Goods with Non-rivalrous and Non-excludability
Private goods are Rival and Excludable
i.e.
Consumption by one person mean that it cannot be consumed by anyone else and that it is not available to anyone else
What are some common examples of Public Goods?
- Street lighting
- Nuclear defense systems
- National parks
What is the Free Rider Problem?
The problem that once a public good product is provided, it is impossible to prevent people from using it and therefore impossible to charge it
Why is the Free Rider a problem?
Because in such circumstances that market will fail: an insufficient number of people will be willing to pay for the product and it will not be profitable for a business to provide it
TEST YOURSELF - how do Private Goods differ from Public Goods?
Private Goods are excludable excludable;
It is possible to prevent everyone from consuming the product
and rivalrous;
Consumption by one person means that less is available for others
TEST YOURSELF - why does the Free Rider Problem occur?
Because it is impossible to exclude people from consuming the product
TEST YOURSELF - if a person buys a TV, it is not possible to prevent them using it whether or not he has a TV license. How do the authorities try to make this an ‘excludable’ service?
By the use of detectors vans and hand-held detectors to ensure that those using televisions have a license
