2.10 - Public goods Flashcards
What is a public good?
They are goods that are not provided by the free market and government intervention is needed to change this missing market.
What are the 2 characteristics of a public good?
They are non-rivalled and non-excludable.
What does the non-rivalry mean?
If one person consumes a good this doesn’t stop another person from consuming it. For example, a street light.
What does the non-excludability mean?
Someone not paying for a good doesn’t affect their ability to consume it.
What does the non-excludable nature of public goods give rise to?
The free rider problem.
Why does the free rider problem explain why public goods are under provided by the private sector?
People who do not pay for the good still receive benefits from it, in the same way people who pay for the good do. This is why public
goods are under provided by the private sector: they do not make a profit
from providing the good since consumers do not see a reason to pay for the good, if they still receive the benefit without paying.
Why are public goods also under provided for by the private sector? (ex. the free rider problem)
Public goods are also under provided because it is difficult to measure the value consumers get from public goods, so it is hard to put a price on the good. Consumers will undervalue the benefit, so they can pay less, whilst producers will overvalue, so they can charge more.
What are private goods?
Private goods are rival and excludable. For example, a chocolate bar can only be consumed by one consumer. Moreover, private property rights can be used to prevent others from consuming the good as well.
What is a quasi public good?
Quasi-public goods have characteristics of both private and public goods, including partial excludability, partial rivalry, partial diminishability and partial rejectability. Examples include roads, tunnels and bridges.
