2.9 Market Failure - Public Goods Flashcards
What can a public good be
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
What is the free rider problem
People enjoy the use of a good without paying for it, arises from non-excludability: people cannot be excluded from using the good
Government intervention to correct market failure to provide public goods
Direct goverment provision
Contracting out to the private sector
Explain direct government provision
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
Explain contracting out to the private sector
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