LS18 - Public Goods Flashcards
Non-rivalrous
Consumption of a product doesn’t prevent another person from consuming that product
Non-excludable
Once a good is provided, it is impossible to stop people from using it
Free-rider problem
Type of market failure that occurs because everybody is able to benefit from them. Free riders are a problem because while not paying for it people can still use it. Leading to the good being under provided or not provided at all
Social benefits
Private benefits + external benefits
Social costs
= private costs + external costs
Positive externality
Social benefit doesn’t equal private benefit as external benefits are present
Negative externality
Social cost does not equal private costs since external costs are present
Social optimal level of output
Occurs where all external benefits and external costs are accounted for
What happens if external benefits are present in a free market
Underconsumption/underproduction
What happens in a free market if external costs are present
Overconsumption/overproduction
