1.3.4 Public goods Flashcards
Public goods
A good which is avaiable for free, for everyone.
Non-rivalry
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.
Non-excludability
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
What are the two characteristics of public goods?
- Non-excludability
- Non-rivalry
Why are public goods often under-provided in a free market?
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.
Free rider problem
[A problem with public goods]
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.
Examples of public goods
- 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.
Quasi-public goods
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.
Public spending vs public goods
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.
What are private goods?
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.
What is an example of a private good?
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.
