1.3.4 Public goods Flashcards

1
Q

Public goods

A

A good which is avaiable for free, for everyone.

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2
Q

Non-rivalry

A

One person benefiting from the good doesn’t stop others also benefiting.
- E.g. benefiting from a street light doesn’t reduce the light available for others.

This means that true public goods have zero marginal cost – there’s no additional cost to extending the good to one more person.

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3
Q

Non-excludability

A

People cannot be stopped from consuming the good even if they haven’t paid for it.
- E.g. you couldn’t stop an individual benefiting from the services of the armed forces

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4
Q

What are the two characteristics of public goods?

A
  • Non-excludability
  • Non-rivalry
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5
Q

Why are public goods often under-provided in a free market?

A

Its characteristics of non-rivalry and non-excludability mean there is an incentive not to pay. In a free market, firms may not provide the good as they have difficulty charging people for their use.

As a result, governments will have to intervene to provide the public good.

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6
Q

Free rider problem

[A problem with public goods]

A

Once a public good is provided, it is impossible to stop someone from benefitting from it even if they haven’t paid towards it.
- For example, a firm providing street cleaning cannot stop a free rider who has refused to pay for street cleaning, benefiting from a clean street.

Consumers won’t choose to pay for a public good that they can get for free because other consumers have paid for it. If everyone decides to wait and see who will provide and pay for a public good, then it won’t be provide government to provide it directly out of general taxation.

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7
Q

Examples of public goods

A
  • National defence - If you protect the country from invasion, it benefits everyone in the country.
  • Street lighting - If you provide light at night, you can’t stop anyone consuming the good. Walking under a street light doesn’t reduce the amount of light for others.
  • Police service - If you provide law and order, everyone in the community will benefit from improved security and reduced crime.
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8
Q

Quasi-public goods

A

Goods which have an element of non-excludability and non-rivalry.

  • For example, roads appear to have the characteristics of a public good – they are (usually) free for everyone to use (non-excludable) and one person using a road doesn’t prevent another person from using it too (non-rivalrous). However, tolls can make a road excludable by excluding those who don’t pay to use the road, and congestion will make a road exhibit rivalry as there’s a limit to the number of people who can benefit from the road at any one time.
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9
Q

Public spending vs public goods

A

Public spending is spending done by governments. - This spending is not always on public goods, it can be on merit goods instead.

Public goods aren’t always provided by governments.

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10
Q

What are private goods?

A

Private goods are excludable (you can stop someone consuming them) and they exhibit rivalry.

For example, biscuits are a private good – if you eat a biscuit you stop anyone else from eating it.

Unlike public goods, people have a choice as to whether to consume private goods – biscuits can be rejected.

The free market is able to exclude consumers who have not paid and therefore make a profit. Therefore, the “free rider problem” does not exist.

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11
Q

What is an example of a private good?

A

Most goods are private goods and they are the opposite of a public good.

Examples (of which there are many) include cars, bottled water, university education, bread and phones.

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