MF- Public And Private Goods

Question 1

Public goods cause market failure due to..

Answer 1

The problem of missing markets. Public goods are also known as collective consumption goods.

Question 2

A private good or services has the following 3 characteristics

Answer 2

1. Excludable (cannot enjoy the product unless they pay- can make profits)
2. Rival in consumption (one persons consumption of a product reduces the amount left for others to consume- e.g. Using the road)
3. Rejectable (consumers can reject goods/services due to choice)

Question 3

Key characteristic of public goods

Answer 3

1. Non-excludability (non-payers can also enjoy the benefits of consumption- free rider problem)
2. Non-rival consumption (if it is supplied to one person, it is available to all)
3. Non-rejectable (the collective supply for all means that people cannot reject it- it benefits all)

Question 4

Private sector markers might fail as

Answer 4

They cannot supply in part or in whole the optimum quantity of public goods

Question 5

Pure public goods are not normally provided by the private sector because

Answer 5

They would be unable to supply them for a profit

Question 6

Who is it up to to decide what output of public goods is appropriate for society

Answer 6

The government - to do this they must estimate the net social benefits from making public goods available

Question 7

What is the free rider problem

Answer 7

Because public goods are non-excludable it is difficult to charge people for benefitting from a good or service once it is provided, thus causes market failure as it becomes under provided

Question 8

What are quasi public goods

Answer 8

A near-public good I.e. It has many but not all the characteristics of a public good

Question 9

Characteristics of quasi-public goods

Answer 9

1. Semi-non-rival (quasi-public goods can become crowded e.g. Parks and beaches)
2. Semi-non-excludable (it is possible but often difficult or expensive to exclude non-paying consumers e.g fencing a park and charging entrance fee)

Question 10

The changing nature of public goods

Answer 10

• advances in technology are blurring the distinction between public and private goods
• technological progress also reduces the cost of smart metering used in road pricing - making them more of a private (excludable) good

Question 11

Examples of public goods

Answer 11

• flood defence
• crime control for an area
• vaccinations
• learning online

Question 12

Case for government intervention with public goods

Answer 12

• non-rival nature of consumption
• many public goods are free to the point of use and then funded by taxation - BBC
• may help under provision and under consumption
• may be able to provide public goods more efficiently due to economies of scale
• helps affordability and access to important services
• if gov becomes a monopoly provider, there is a danger of a lack of efficiency arising from a lack of competition

Question 13

What are global public goods

Answer 13

Goods that benefit every country, irrespective of which ones provide them

Question 14

Examples of global public goods

Answer 14

• security from war
• rule of law
• eradication of smallpox and Ebola
• non use of nuclear weapons
• agreements towards protection of the ozone layer

Question 15

What is a public bad

Answer 15

A public bad has a negative effect on people and their communities leading to a significant loss of social welfare

Question 16

Examples of public bads

Answer 16

• spread of infectious diseases
• modern slavery/trafficking
• gender discrimination in labour markets
• web viruses