4.1.8.2 /3 - market failure/ Public,priv Goods Flashcards
Define market failure
When the free market leads to misallocation of resources in an economy
Define compete market failure
When the free market fails to create a market for a good or service, it is also referred to as a missing market
Define partial market failure
When a market for a good or service exists but is consumed or produced in quantities that do not maximise economic welfare
Define rivalrous
Consumption of a good by one person results in it not being available for consumption of another individual eg: a donut, one its eaten no one else can enjoy it
Define no - rivalrous
The consumption of the good by one person doesn’t reduce the amount that is available for other people to consume eg: clean air, everyone can access it without affecting the use of others
Define excludable
Once the good has been provided, it is possible to prevent others from using it eg: tickets for a concert, only people with a ticket can enter the concert
Define non - excludable
Once the good has been provided to one individual it is impossible to prevent others from using it also eg: a loud speaker
Define a private good
A good which possessed the characteristics of being both rivalrous and excludable eg: bowl of food, gym membership
Define a pure public good
A good which possessed the characteristics of being both non-rivalrous and non-excludable eg: street lights, military defence system
Define a quasi public good
A good which doesn’t perfectly proses the characteristics of rivalrous and excludable or non excludable and non rivalrous. Quasi - public goods can be semi- rivalrous or semi-excludable eg: public beach, free concert
What is a free rider
Someone who receives the benefit of a good or service but allows others to pay for it
Why does the free rider problem occur with public goods
A public good is non- excludable so there is not an incentive for consumers to pay for it. It would maximise their utility to use the good without the cost of paying for it
What is the tragedy of the commons
Occurs when what maximises individuals utility in the short term doesn’t maximise their utility in the long term. Overtime goods are consumed which will lead to damage in the future eg: over-fishing, deforestation, diesel cars
How is the tragedy of the commons connected to public gods
The cost of the good is spread across everyone regardless of their own personal usage because the goods are non excludable.
What are the consequences of the tragedy of the commons
Complete market failure, leads to the unsustainable use of goods. The gov will often have to interfere and limit the consumption of the good because if left to the free market, damage would be crated
