2.9 Market Failure - Public Goods Flashcards

1
Q

What can a public good be

A

Non-rivalrous - consumption by one person does not reduce consumption by someone else
Non-excludable - it s not possible to exclude someone from using the good

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2
Q

What is the free rider problem

A

People enjoy the use of a good without paying for it, arises from non-excludability: people cannot be excluded from using the good

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3
Q

Government intervention to correct market failure to provide public goods

A

Direct goverment provision
Contracting out to the private sector

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4
Q

Explain direct government provision

A

Government must step in to ensure that public goods are produced at socially desirable levels

Therefore public goods are provided by government

Governments must make economic decisions on what public goods should be provided

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5
Q

Explain contracting out to the private sector

A

Government may provide public goods by contracting it out to a private firm

Contracting out by public sector to private sector occurs when government makes an agreement with a private firm to carry out an activity that the government was previously doing

E.x instead of hiring engineers to build roads, may contract construction out to a private construction firm

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