Chapter 7: Public goods Flashcards
Why can a market system fail?
Due to the presence of market dominance, factor immobility, inequality, trade unions, the existence of externalities and the provision of public goods.
What goods does the market system mainly supply?
Private goods
What are private goods?
Goods that are excludable and rival in consumption.
What does ‘excludable’ mean?
If one person consumes it then another cannot, the benefits of the product are exclusive to the user.
What does ‘rival in consumption’ mean?
An increase in one person’s consumption means there is less available for another.
What are public goods?
Goods that are non-excludable and non-rival.
What does ‘non-excludable’ mean?
Once provided, nobody can be excluded from the benefits of a public good.
What does ‘non-rival’ mean?
If one person consumes more, it does not mean there is any less for others.
What are some examples of public goods?
Defence, law and order, lighthouses and street-lighting.
What happens to the total cost of production of a public good as the number of consumers increases?
It does not increase.
What is a quasi-public good?
It has elements of both a private and public good.
How are roads quasi-public goods?
They have the characteristics of a public good up until the point where the become congested, thereafter they become excludable and rival.
Why can private goods be provided in optimal quantities by the market system?
Individuals are willing to pay for goods that give benefits that are exclusive to them.
Why does the market system fail to provide public goods?
Public goods are available to everyone and no individual can be excluded from their benefits.
What is a free-rider?
Someone who receives the benefit of a good but allows others to pay for it.
