3.8.3 - Private Goods, Public Goods and Quasi-Public Goods Flashcards
What are private goods?
A good that is excludable and rival.
What is excludability?
People who are unprepared to pay can be removed from benefiting the good.
What is a rival good?
When one person consumes a private good, the quantity available to others diminishes.
What are the two definining characteristics of private goods?
Excludable
Rival
What is the synonym for rivalrous goods?
Diminishable goods.
More goods are private than public. T/F?
True.
What is a public good?
A good, that is non-excludable and non-rival.
What is an example of a pure public good?
A lighthouse. (or rather, the beam of light that comes from it)
How can entrepreneurs try and commercialise a pure public good such as a lighthouse?
You can charge each ship that sails through the light during the night.
Why is a market for a commercialised pure public good likely to fail?
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)
Why does non-excludability make it difficult to cover costs?
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.
How do governments solve the ‘free-rider’ problem?
They do not leave it up to the market to provide and provide it themselves through taxation costs.
What are the main examples of public goods?
National defence, police, street lighting, roads etc.
Why is national defence an excellent example of a public good?
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.
Give an analogy for national defence?
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.
What is an economic ‘bad’?
A product that reduces economic welfare.
What is an economic ‘good’?
A product that increases economic welfare.
What is a ‘public bad’?
A product that reduces economic welfare societally.
What is a ‘public bad’?
A product that reduces economic welfare societally.
What is an example of a ‘public bad’ and why is it called such?
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.
How does the market for removal of ‘public bads’ fail?
If you can move your public bads to somewhere else, you can free-ride on the government or another person.
What is a quasi-public good?
A good which is not fully non-rival and/or where it is possible to exclude people from consuming the product.
What is the distinction between pure public and quasi-public goods?
Pure public goods are completely impossible to remove free-riders.
Quasi-public goods are able to inject some market mechanisms to provide the goods.
How are roads a quasi-public good?
The electronic pricing of road use.
Where does the optimal level of consumption lie for public goods?
When they are free of charge.
What is the argument for charging for public goods such as roads or radio transmissions?
There are capacity constraints for both roads and airwaves.
Charging for these goods might prevent the high levels of congestion.
How has technological change redefined some pure-public goods?
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.
