Micro: 1.3.3 Public goods Flashcards
What are public goods?
Goods that are both non-rival and non-excludable.
What does non-rival mean?
The consumption of a product by one person does not prevent another person from also consuming that product.
Example: A radio or TV programme demonstrates non-rivalry because one person listening to the programme does not prevent others from listening to it.
What does non-excludable mean?
Once a good is provided, it is impossible to stop people from using it.
Example: Once a lighthouse is provided, ships at sea cannot be prevented from benefiting from it.
Why are public goods provided by governments?
Because people cannot be prevented from using them and firms have no incentive to provide them as they cannot make a profit.
What is the free rider problem?
The issue where consumers benefit from a product without paying for it.
What is an example of a rival good?
A radio or TV is a rival good because it can be consumed by only one person at a time.
What is an example of a private good?
Cars are classified as private goods because a manufacturer can exclude someone from purchasing them if that person cannot afford it.
