Public and private goods

Question 1

What is the excludability characteristic of private goods?

Answer 1

Excludability refers to the ability of the owner to prevent others from using or consuming the good (e.g., a privately owned car).

Question 2

What is the rivalry (diminishability) characteristic of private goods?

Answer 2

Rivalry means that when one person consumes the good, less of it is available for others (e.g., eating a sandwich means no one else can eat it).

Question 3

What is rejectability in private goods?

Answer 3

Rejectability means people can opt not to purchase private goods (e.g., refusing to buy a smartphone).

Question 4

What are the key characteristics of private goods?

Answer 4

1. Private Property Rights: Owners control access to the good.
2. Market Mechanism: Private goods are typically provided through the market because they allow for profit generation.

Question 5

What is the non-excludability characteristic of public goods?

Answer 5

Non-excludability means it is impossible to prevent someone from using the good, even if they do not pay for it (e.g., national defense, clean air).

Question 6

What is the non-rivalry characteristic of public goods?

Answer 6

Non-rivalry means one person’s consumption of the good does not reduce its availability to others (e.g., listening to a radio broadcast does not affect others’ ability to listen).

Question 7

What is non-rejectability in public goods?

Answer 7

Non-rejectability means people cannot opt out of consuming the good once it is provided (e.g., national defense protects everyone in a country).

Question 8

What are the key characteristics of public goods?

Answer 8

1. Free Rider Problem: Due to non-excludability, people may consume public goods without paying, leading to under-provision in a free market.
2. Market Failure: Private firms are unlikely to supply public goods because they cannot exclude non-payers and cannot profit, resulting in market failure.

Question 9

What is an example of a public good?

Answer 9

National defense is an example of a public good because it protects everyone in a country, regardless of whether individuals pay taxes or not.

Question 10

What are quasi-public goods?

Answer 10

Quasi-public goods have some properties of public goods but can be partially excludable or rival. Examples include roads (can be made excludable via tolls) and television broadcasts (evolved into a quasi-public good with cable/satellite).

Question 11

How does excludability work for quasi-public goods?

Answer 11

Methods like tolls or subscription fees can limit access to certain public goods, making them quasi-public.

Question 12

How is allocative efficiency achieved with private goods?

Answer 12

Allocative efficiency for private goods occurs when the price (P) equals the marginal cost (MC) of production (P = MC).

Question 13

How is allocative efficiency achieved with public goods?

Answer 13

For public goods, allocative efficiency occurs when P = 0 (since the marginal cost of adding another consumer is zero). However, providing the good for free is not feasible in private markets because no profit would be made.

Question 14

How is allocative efficiency achieved with quasi-public goods?

Answer 14

Markets can provide quasi-public goods, but at a price above marginal cost (P > MC), meaning the quantity of the good may be below the allocatively efficient level unless subsidized or provided by the government.

Question 15

What role does government intervention play in public goods?

Answer 15

Governments intervene by providing public goods to ensure their availability to all citizens due to non-excludability and non-rivalry, which often result in market failure.

Question 16

What are some examples of public goods provided by the government?

Answer 16

Examples of public goods include national defense, street lighting, police services, and air quality control.

Question 17

What is the definition of public ‘bads’?

Answer 17

A public ‘bad’ is the opposite of a good, where people are willing to pay to avoid its consumption. Public ‘bads’ are often non-excludable, meaning people can free ride by offloading the negative effects on others (e.g., pollution, fly-tipping, deforestation).

Question 18

Are education and healthcare considered public goods? Why or why not?

Answer 18

Education and healthcare are merit goods, not pure public goods, because they are excludable and rival in nature (e.g., paying for a healthcare consultation limits availability to others).

Question 19

What is the government’s role in managing public ‘bads’?

Answer 19

Governments use taxes or regulations to control public ‘bads’, such as imposing fines for pollution or providing waste removal services to prevent free-riding.

Question 20

What are externalities in relation to public goods and public ‘bads’?

Answer 20

Public goods often have positive externalities (benefits to society), while public ‘bads’ are linked to negative externalities (costs to society). Market failures occur when the private sector does not account for these social costs or benefits.

Question 21

What is the free rider problem?

Answer 21

The free rider problem occurs when individuals benefit from a service or good without contributing to its cost, making the market inefficient. This is a key issue with public goods and some merit goods (e.g., education, healthcare).

Question 22

How do governments address market failure and free-riding?

Answer 22

Governments address market failure and free-riding through:

1. Taxation: Used to fund public goods and tackle public bads (e.g., carbon taxes).
2. Subsidies: Governments may subsidize quasi-public goods to encourage market provision at a socially optimal level.
3. Regulation: Enforcing regulations (e.g., pollution controls) to mitigate the effects of public bads.

Question 23

What is the summary of private goods, public goods, and quasi-public goods?

Answer 23

• Private Goods: Excludable, rival, and rejectable; efficiently allocated through the market.
• Public Goods: Non-excludable, non-rival, and non-rejectable; subject to market failure and the free rider problem, often provided by the government.
• Quasi-Public Goods: Some characteristics of public goods, but can be partially excludable; markets can provide but at less efficient levels.
• Government Intervention: Key to addressing market failure in public goods and public ‘bads’.