4.1.8.3 public goods, private goods and quasi-public goods

Question 1

what are public goods?

Answer 1

• they’re missing from the free market
• they offer benefits to society
  eg) street lights / flood control systems
• they’re non-excludable
  -> they’re non-rivalrous

Question 2

what does it mean for a good to be non-excludable?

Answer 2

by consuming the good, someone else isn’t prevented from consuming the good as well

Question 3

what does it mean for a good to be non-rivalrous?

Answer 3

the benefit other people get form the good doesn’t diminish if more people consume the good

Question 4

non-excludable goods give rise to the free-rider problem
what is this?

Answer 4

• people who don’t pay for the good still receive benefits from it like people that do pay for it
• this is why public goods are under-provided by the private sector
• they don’t make a profit from providing the good since consumers don’t see a reason to pay for the good
• if they still receive the benefit without paying it will maximise their utility

Question 5

why are public goods under-provided besides the free-rider problem?

Answer 5

• because it’s difficult to measure the value consumers get from public goods
  -> therefore it’s hard to put a price on the good
• consumers wil undervalue the benefit so they can pay less
  -> producers will overvalue, so they can charge more
• governments provide public goods and they have to estimate what the social benefit of the public good is when deciding what output of the good to provide
• they’re funded using tax revenue, but the Q provided will be less than the socially optimum Q

Question 6

what are private goods?

how can private property rights be used?

Answer 6

• they’re rivalrous and excludable

eg) a chocolate bar can only be consumed by one consumer

• private property rights can also be used to prevent others from consuming the good

Question 7

what are quasi public goods?

Answer 7

• have characteristics of both public and private goods
• partial provided by the free market

-> consumers still try to free ride

• can be semi-rivalrous, semi-excludable or both
• partial market failure = inefficient quantity, over/under provided

eg) roads are semi-excludable through tolls, they’re also semi-non rivalrous, consumers can benefit from the road whilst other consumers are using it (unless it’s rush hour)

• technological change can be significant
  eg) TV broadcasting is now excludable with subscriptions available to those willing and able to pay for them

Question 8

what are pure public goods?

Answer 8

• relatively few examples, though many goods contain a public good element
• non-excludable = no incentive for consumers to pay
• no incentive for firms to produce them; no payment = no profit
• complete market failure = not produced in free market

Question 9

what is the Tragedy of the Commons?

Answer 9

suggested by William Forster Lloyd (1965)

• optimises short term self interest over long term utility of public population
  -> benefit is individualised but effect is spread
  -> being used unsustainably
• links to concepts of public goods
  -> selfish consumption, using goods without paying
  -> funding lacks as a result which = decrease in services
  -> cost is spread across everyone regardless of personal usage
  -> because they’re non-excludable and therefore targets for tragedy of the commons
• consequences of the tragedy for provision of affected goods include:
  -> complete market failure
  -> the population is affected not just the individual
  -> loss of supply due to excess demand