3.8.3 - Private Goods, Public Goods and Quasi-Public Goods

Question 1

What are private goods?

Answer 1

A good that is excludable and rival.

Question 2

What is excludability?

Answer 2

People who are unprepared to pay can be removed from benefiting the good.

Question 3

What is a rival good?

Answer 3

When one person consumes a private good, the quantity available to others diminishes.

Question 4

What are the two definining characteristics of private goods?

Answer 4

Excludable
Rival

Question 5

What is the synonym for rivalrous goods?

Answer 5

Diminishable goods.

Question 6

More goods are private than public. T/F?

Answer 6

True.

Question 7

What is a public good?

Answer 7

A good, that is non-excludable and non-rival.

Question 8

What is an example of a pure public good?

Answer 8

A lighthouse. (or rather, the beam of light that comes from it)

Question 9

How can entrepreneurs try and commercialise a pure public good such as a lighthouse?

Answer 9

You can charge each ship that sails through the light during the night.

Question 10

Why is a market for a commercialised pure public good likely to fail?

Answer 10

The appearance of one ship in the area does not prevent other ships from sailing. (non-rivalrous)

It is impossible to exclude free-riders. (non-excludability)

Question 11

Why does non-excludability make it difficult to cover costs?

Answer 11

There will be many ‘free-riders’ which make it very difficult for profits to be made so the incentive to provide the service through the market disappears.

Question 12

How do governments solve the ‘free-rider’ problem?

Answer 12

They do not leave it up to the market to provide and provide it themselves through taxation costs.

Question 13

What are the main examples of public goods?

Answer 13

National defence, police, street lighting, roads etc.

Question 14

Why is national defence an excellent example of a public good?

Answer 14

The benefits of national defence do not stop other people from having the benefits.

If you provide national defence for one, you then have to provide the defence for everyone otherwise it would not be national.

Question 15

Give an analogy for national defence?

Answer 15

If the state decides not to provide national defence, an entrepreneur can make it themselves, setting up a firm known as ‘Nuclear Defence Services Ltd.’ expecting the country’s residents to purchase the services of nuclear missiles located around the country.

However, the payments never come through as the ‘free-rider’ problem takes hold. If the service is there, they cannot stop certain people from receiving it. All individuals face the temptation to not pay.

Question 16

What is an economic ‘bad’?

Answer 16

A product that reduces economic welfare.

Question 17

What is an economic ‘good’?

Answer 17

A product that increases economic welfare.

Question 18

What is a ‘public bad’?

Answer 18

A product that reduces economic welfare societally.

Question 19

What is a ‘public bad’?

Answer 19

A product that reduces economic welfare societally.

Question 20

What is an example of a ‘public bad’ and why is it called such?

Answer 20

Rubbish.

People are generally prepared to pay to remove the unpleasantness.
Payment can be avoided by dumping the ‘bad’ in a public place or on someone else’s property.

Question 21

How does the market for removal of ‘public bads’ fail?

Answer 21

If you can move your public bads to somewhere else, you can free-ride on the government or another person.

Question 22

What is a quasi-public good?

Answer 22

A good which is not fully non-rival and/or where it is possible to exclude people from consuming the product.

Question 23

What is the distinction between pure public and quasi-public goods?

Answer 23

Pure public goods are completely impossible to remove free-riders.

Quasi-public goods are able to inject some market mechanisms to provide the goods.

Question 24

How are roads a quasi-public good?

Answer 24

The electronic pricing of road use.

Question 25

Where does the optimal level of consumption lie for public goods?

Answer 25

When they are free of charge.

Question 26

What is the argument for charging for public goods such as roads or radio transmissions?

Answer 26

There are capacity constraints for both roads and airwaves.

Charging for these goods might prevent the high levels of congestion.

Question 27

How has technological change redefined some pure-public goods?

Answer 27

Previously, pure public goods such as roads could not have any charges associated.

With technological advancement, roads have been redefined as a quasi-public good as cameras can detect number plates and charge road users for driving.

Incentives can be created by charging drivers more if they drive at rush hour or in high polluting vehicles.