LS18 - Public Goods Flashcards
Public Goods
Goods that are both non-rivalrous and non-excludable
Non-Rivalrous
When the consumption of a product doesn’t prevent another person from also consuming that product e.g. if one person watches a TV programme it doesn’t stop other people from watching it.
Non Excludable
Once a good is provided, it’s impossible to stop people from using it e.g. a lighthouse
Free Rider Problem
Market failure that occurs because everyone is able to benefit from a public good, whilst not paying for the good good consumers continue to access it, meaning the good is likely to be under-provided.
Social Benefits Equation
Social Benefits = Private Benefits + External Benefits
Social Costs Equation
Social Costs = Private Costs + External Costs
When Do Positive Externalities Occur?
When social benefits>private benefits.
When Do Negative Externalities Occur
When social costs>private costs
When Does The Social Optimal Level Of Output Occur>
Where all external benefits and costs are accounted for.
What Do External Benefits Mean?
There will be underproduction/underconsumption in a free market.
What Do External Costs Mean?
There will be overproduction/overconsumption in a free market.
