A2.03.06: The Nature of Public Goods

Question 1

Define non-excludable

Answer 1

No price can be charged for a public good that excludes others that haven’t paid

Question 2

Define non-rivalrous

Answer 2

An individual’s consumption doesn’t prevent simultaneous consumption by another individual

Question 3

Define public goods

Answer 3

Goods that are not provided in a free market but are beneficial to society having non-rivalrous and non-excludable features

Question 4

Define free-rider problem

Answer 4

Where individuals have the incentive not to contribute any cost at all to the provision of the public good whilst also benefiting from the public good

Question 5

Why are public goods not provided and give 4 examples

Answer 5

They are not provided as there is no profit to be made thus, small MPB

E.g:
- Roads
- Beaches
- Streetlights
- Flood Defences

Question 6

State the reasons why no price can be charged for a public good thus, making them non-excludable

Answer 6

• The benefits of consuming the good cannot be confined to the individual that has paid for it
• There is no cost efficient way of pricing (too expensive, for example)

Question 7

State the reason why public goods are non-rivalrous

Answer 7

If someone consumes this good, the quantity available remains exactly the same for everybody else that consumes it

Question 8

What is the free rider problem, its implications and how does this lead to market failure

Answer 8

• Pure public goods are non-excludable - meaning that no price can be charged for a public good that excludes others that haven’t paid
• Producers will only be prepared to supply the good if they can charge a market price for it and make profits
• However, the fact that the good is non-excludable means that it’s unlikely that consumers will buy the product as they will be reluct to purchase a good at their own expense given that others will consume it without paying - this is the free-rider problem
• This lack of market demand means that the good will not be provided by the free market hence, it’s a market failure.

Question 9

To evaluate, what are quasi-public goods and give the example of roads. Is there also a specific role technology plays?

Answer 9

• Quasi Public Goods are goods having only some characteristics of public goods

Roads can be excludable (a type of club good - excludable but mostly non-rivalrous):
- Through toll roads for which there is a fee assessed for passage. With tech improving, it may be a camera that scans the license plate and takes money away from the car itself.

Roads can be rivalrous ( (a type of club good - can be rivalrous):
- During congestion times (traffic), road space does diminish upon consumption thus, an individual’s consumption prevents simultaneous consumption by another individual

Technology has allowed for firms more cost-effective ways to price therefore, potentially making pure public goods not public goods anymore but maybe private goods.

Question 10

What are congestible goods and give 4 examples

Answer 10

• Goods that are non-excludable and non-rivalrous at times and rivalrous at others.

e.g:
- Public motorways
- Public libraries
- Public parks
- Public wifi

Question 11

State 4 examples of private goods

Answer 11

• Airplane tickets
• Meals in a restaurant
• Tickets to a concert
• Cars