8.3 Public Goods, Private Goods And Quasi-public Goods Flashcards
What are public goods?
- Public goods are missing from the free market, but they offer benefits to
society. - For example, street lights and flood control systems are public goods.
What are two features of public goods?
- They are non-excludable
- They are non-rival
What is meant by non excludable?
- by consuming the good, someone else is not prevented from consuming the good as well
- the non-excludable nature of public goods gives rise to the free-rider problem.
What is meant by non rival?
- The benefit other people get from the good does not diminish if more people consume the good.
What is the free rider problem?
- people who do not pay for the good still receive benefits from it, in the same way people who pay for the good do.
Why are public goods underprovided by the private sector?
- because of the free rider problem
- private sector do not make a profit
from providing the good since consumers do not see a reason to pay for the good, if they still receive the benefit without paying.
What are some other reasons why public goods are underprovided?
- because it is difficult to measure the
value consumers get from public goods, so it is hard to put a price on the
good. - consumers will undervalue the benefit, so they can pay less, whilst producers will overvalue, so they can charge more
How do governments provide public goods?
- They have to estimate what the
social benefit of the public good is when deciding what output of the good to
provide. - They are funded using tax revenue, but the quantity provided will be less than the socially optimum quantity.
What are private goods?
- Private goods are rival and excludable.
- For example, a chocolate bar can only
be consumed by one consumer. - Moreover, private property rights can be used to prevent others from consuming the good.
What are quasi (non-pure) public goods?
- They have characteristics of both public and private goods.
- They are partially provided by the free market.
- For example, roads are semi-excludable, through tolls and they are semi-non-rival, because consumers can benefit from the road whilst other consumers are using it (unless it is rush hour).
How has technological change been impacted by excludability?
- Technological change can be significant.
- For example, television broadcastingis now excludable with subscriptions available to those willing and able to pay for them e.g. netflix, disney plus
What is the tragedy of the commons?
- the tragedy of the commons refers how individuals prioritise personal gain
over the well-being of society. - when resources are held in common, it means that no one owns the resource, but everyone can access it.
- for example, no one owns the air, but everyone can use it.
- this unlimited use leads to the negative externality of air pollution.
- this is a market failure that results from common access.
What are three possible solutions to the tragedy of commons?
- rules and regulations
- cultural norms
- creating property rights
Give an example of a rule or regulation that would offer a solution to the tragedy of the commons
Evaluate the use of rules and regulations as a solution to the tragedy of commons
- E.g. limiting the number of days that people can fish for
- EVAL: often inefficient and ineffective, limits the tragedy but barely prevents it
Give an example of how cultural norms could be a solution to the tragedy of the commons
Evaluate the use of cultural norms as a solution to the tragedy of commons
e.g.
* overfishing results in cultural disapproval
* one who honours the norms is respected
* can be effective in relatively small, self-governing communities
- EVAL: takes a long time for cultural norms to develop
