5.4 Public Goods Flashcards
What are the two characteristics of pure public goods?
Non-excludable and non-rival (non-diminishable).
What does non-excludable mean in relation to public goods?
No price can be charged to exclude consumers from purchasing the good because the benefits of consuming the good cannot be confined solely to individual who has paid for it. There is also not a reasonable and cost-effective way to charge consumers and thus exclude others from using the public good.
What does non-rival mean in relation to public goods?
Upon consumption of the public good, the supply available to others remains exactly the same.
What is the free rider problem in relation to public goods?
Rational consumers will not contribute at all to the provision of the public good waiting instead for others to contribute to free ride off their contribution. If every consumer acts this way, there would be no contribution towards the provision of public goods, taking away the incentive for private firms to supply them with no profit that can be made. There would end up being no supply of public goods at all in the free market, a missing market and complete market failure.
What are quasi public goods?
Quasi public goods possess one but not the other characteristic of a pure public good or that sometimes possess the characteristics of a pure public good but sometimes not. For example, roads are both non-excludable and non-rival, but toll roads make roads excludable and during peak rush hour times when there is stand still congestion, roads become rival. In this sense, roads can be said to be quasi public goods.
How is technology changing the nature of public goods?
Technology is making it easier to exclude consumers from the consumption of public goods. For example, electronic road pricing, music and video streaming services, and encryption with file sharing.
