LS18 - Public Goods Flashcards
What are the characteristics of public goods?
Non-rivalrous & non-excludable
What are the characteristics of private goods?
Rivalrous & excludable
What does non-rivalrous mean?
The consumption of a product doesn’t prevent another person from also consuming that product
What does non-excludable mean?
Once a good is provided, it is impossible to stop people from using it
What is the free rider problem?
A type of market failure which occurs because everyone is able to benefit from them
What are free riders a problem?
Whole not paying for the good, they can still access it so the good is likely to be under-provided or not provided at all
What is a social benefit?
Private benefit + external benefit
What is a social cost?
Private cost + social cost
What is a positive externality?
Social benefit > private benefit (some external benefit)
What is a negative externality?
Social cost > private cost (some external cost)
What is the social optimum level of output?
When all external benefits & costs are accounted for
What happens when external benefits are present?
There is underproduction/under-provision in a free market
What happens when external costs are present?
There is overproduction/over-provision in a free market
