6) Public Goods - MMT

Question 1

What is the most prominent information failure leading to market failure?

Answer 1

The existence of merit goods and demerit goods

Question 2

What is a third major example of market failure?

Answer 2

Incomplete or completely missing markets, in other words there is no market

Question 3

When do missing markets occur?

Answer 3

When there is a big demand for a good or service but no free market business wants to provide

Question 4

When do incomplete markets occur?

Answer 4

When there is is a big demand for a particular good or service but not enough private sector businesses are interested in meeting this demand

Question 5

Most goods are…

Answer 5

Private goods

Question 6

What is a private good?

Answer 6

Is what someone consumes the good, and then no-one else can consume that particular good

Question 7

What are examples of a private good?

Answer 7

Cereal, chocolate, haircuts

Question 8

For private , what sort of incentive is there?

Answer 8

There is a large profit incentive for privately owned businesses to meet the demand for the good or service

Question 9

What are Public Goods?

Answer 9

Are commodities or services provided without profit to all members of society, usually by the government

Question 10

In general why do private sector businesses not produce public goods?

Answer 10

In general, private sector businesses are not interested in providing these goods as they do not see that it is possible for them to make a profit from providing them

Question 11

Who normally produces public goods?

Answer 11

Normally have to be provided by the government; otherwise, they wouldn’t exist

Question 12

For pure public goods…

Answer 12

The market is missing

Question 13

What are the 2 main characteristics of a pure public good?

Answer 13

Non-excludability and non-rivalry

Question 14

What is non-rivalry?

Answer 14

Consumption of the good by one person does not reduce the amount available for consumption by another person; does not make it more difficult for someone else to consume it

Question 15

What are examples of non-rivalry?

Answer 15

Listening to a radio station/street lighting

Question 16

What is non-excludability?

Answer 16

Consumption by one individual makes it impossible to exclude any other individual from having the opportunity to consume

Question 17

One non-excludability is provided…

Answer 17

No person can be excluded from benefiting (or suffering, like from pollution)

Question 18

What are examples of non-excludability?

Answer 18

Eg driving on a public road; street lighting

Question 19

What 2 other traits do pure public goods have?

Answer 19

1) zero marginal cost of production
2) non-rejectability

Question 20

What does zero marginal cost of production mean?

Answer 20

Once a public good is provided, the cost of providing for one extra user is zero

Question 21

What is an example of zero marginal cost of production?

Answer 21

Eg the UK armed forces defends the country. Just because one more family move to the UK the cost of defending the country does not change

Question 22

What does non-rejectability mean?

Answer 22

Once a public good has been provided then the beneficiaries of that good cannot avoid consuming it

Question 23

What is an example of Non-rejectability?

Answer 23

Eg if you live in England, you cannot choose to be defended by the USA instead

Question 24

Pure public goods have all these traits:

Answer 24

• non-rivalry
• non-excludability
• zero marginal cost of production
• non- rejectability

Question 25

What are the best examples of pure public goods?

Answer 25

• Defence of the country
• Street Lighting
• Flood barriers
• Light houses

Question 26

What is a quasi-public good?

Answer 26

Is one that have some traits of public goods but not others

Question 27

What is an example of a quasi-public good?

Answer 27

Eg public roads may be non-excludable but they’re not non-rivalrous - if they get too busy you can’t go anywhere

Question 28

Why do public goods cause market failure?

Answer 28

Due to the existence of free riders

Question 29

What is a free rider?

Answer 29

A consumer or business who benefits from a good or service but does not pay for it

Question 30

With pure public goods, how do they charge users?

Answer 30

It is not possible to charge users for their individual use, if the army decides to charge individual households for defence and I paid up but my next-door neighbour refused, would they be less defended? No. This is why free rides exist

Question 31

The existence of free riders means that private businesses are unable to…

Answer 31

Charge everybody who uses the service