4.1.8.3 - Private Goods, Public Goods and Quasi-Public Goods Flashcards
What are private goods?
Goods that are excludable and rival.
What is excludability?
The ability to prevent people who do not pay from benefiting from a good.
What is a rival good?
A good where one person’s consumption diminishes the quantity available to others.
What are the two defining characteristics of private goods?
Excludable and 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 its light beam).
How can entrepreneurs try to commercialize a pure public good such as a lighthouse?
By charging ships that pass through the lighthouse’s beam.
Why is a market for a commercialized pure public good likely to fail?
Non-rivalrous nature (one ship’s use doesn’t affect others) and non-excludability (free-riders can benefit without paying).
Why does non-excludability make it difficult to cover costs?
Free-riders prevent the generation of revenue, leading to a lack of incentive for market provision.
How do governments solve the ‘free-rider’ problem?
By providing public goods through taxation, rather than leaving them to the market.
What are the main examples of public goods?
National defense, police, street lighting, roads, etc.
Why is national defense an excellent example of a public good?
The benefits of national defense do not reduce the benefits to others; it’s impossible to exclude anyone.
Give an analogy for national defense.
A private firm could not sell national defense because of the free-rider problem; everyone benefits whether they pay or not.
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 societal economic welfare.
What is an example of a ‘public bad’?
Rubbish, as people may try to avoid paying to dispose of it, creating negative externalities.
How does the market for removal of ‘public bads’ fail?
Free-riders can dump waste on others or the government, reducing incentives to pay for waste removal.
What is a quasi-public good?
A good that 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 non-excludable and non-rival, whereas quasi-public goods allow for some market mechanisms.
How are roads a quasi-public good?
Through electronic pricing, where users are charged based on usage (e.g., tolls).
Where does the optimal level of consumption lie for public goods?
When they are free of charge.
