1.3.3 Public Goods Flashcards
What is a public good
A good which is both non-excludable + non-rival
They can also be non-rejectable
Give examples of public goods
Sanitation infrastrucutre
Flood denfence projects
Crime control for a community
Reduced risk for disease from vaccination
Freely available knowlege
Public service
Why do Public goods cause market failure
What type of market failure does it cause
Due to the problem of a missing market
There is no supply for these goods because no-one will want supply something that they cannot charge for
It will cause complete market failure
What does Excludable mean
buyers can be excluded from enjoying the product if they are not willing to pay for it
Gives the seller a change to make a profit and give owner the ability to exercise property rights
What does rival in consumption mean
When a good/service is used by a consumer, it is no longer available
One person cosumption of a product reduces the amount left for other to consume and benefit from
Because scarce resoucres are used up in supplying the product
What is the free rider problem
Non-payers can enjoy the benefit of consumption at no financial cost
Free rider have no incentive to reveal how much they are willing and able to pay for a public good
They lead to under-pervision of a good, thus market failure
What does non-excludable mean
The benefits derived from pure public goods cannot be solely confined to those who have paid for it
What does non-rival in consumption mean
Consumption by one consumer does not restrict consumption by other consumer
(the marginal cost of supplying a public good to an extra person is zero so MPB=MSB)
How is the problem of public goods and the free rider problem overcome
The must decide what output of public goods is appropriate for society
To do this, they must estimate the net social benefits from making public goods available.
What is a Quasi-Public Good
Quasi-public good has some characteristics of a public good being:
Semi-non-rival: to a point one person will not effect the use of a good over another person
Semi-non-excludable: it is possible but difficult/costly to exclude non-paying consumers
Quasi-public good are either non-rivial or non-excludable
Case for Government intervention with public goods
- The non-rival nature of consumption provide a strong case to replace the marekt to provide public goods
- Many Public good are free at the point of delivery and funded by taxations or licence fees
- Stops under provision and under-consumption so social welfair is improved
- They could provide public good more efficently due to economie of scale
- Providing public good helps affordability and access to important services for lower income households, therefore help inequalities
Argument against state provision of public goods
- If the Gov becomes a monopoly provider, there is a danger of lack of efficiency arising from lack of competition
- Many other demands of Government finances, and cause an opportunity cost of public goods being provided
- To overcome this, the state funds private sector to provide public goods
What has effected the distinction between public and private goods
- Advances in technology are causing a blurring of the distinction between public and private goods
What is a common pool resource
When no-one owns a resource, it may get overused
i.e. fishing reserves
What is a club good
are exludable but non-rival
