2.10 Public Goods

Question 1

What are public goods

Answer 1

They are non-excludable and non-rival, and they are underprovided in a free market because of the free rider problem but thwy offer benefits to society

Question 2

What does non-excludable mean

Answer 2

By consuming the good, someone else is not prevented from consuming the good as well

Question 3

What does non-rival mean

Answer 3

So the benefit other people get from the good does not diminish if more people consume the good

Question 4

What is the free rider problem

Answer 4

People who do not pay for the good still receive benefits from it, in the same way people who pay for the good do.

Question 5

What are private goods with example

Answer 5

Private goods are rival and excludable

For example, a chocolate bar can only be consumed by one consumer

Question 6

What are quasi public goods with example

Answer 6

Quasi public goods have characteristics of both public and private goods, partial excludability, rejectability and non rivalry

For example, roads or paths

Question 7

Why are public goods underprovided

Answer 7

They are underprovided 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

Question 8

Who provides public goods

Answer 8

Governments provide public goods, and they have to estimate what the social benefit of the public good is when deciding what output of the good to provide. They are funded using tax revenue, but the quantity provided will be less that the socially optimum quantity