Public and private goods Flashcards
What are public goods?
Public goods are defined as:
Non excludable - once a good is provided it is impossible to prevent people from using and benefitting from it
Non rival - consumption of a good by one person does not prevent or reduce the benefits to another person consuming the good
Non rejectable - the collective supply of a pure public good means it cannot be rejected by people
What are private goods?
They are goods and services that are supplied and sold through markets by private sector businesses
What are the characteristics of a private good?
Excludable - Buyers can be excluded from benefitting from the good if they are not willing or able to pay for it
Rival - one persons consumption of a product reduces the amount left for others to consume or benefit from
Rejectable - can be rejected by the consumer if their needs and preferences or their budget chances
What is a pure public good?
non excludable and non rival all of the time eg: national defence, security or mass vaccination
What is a quasi public good?
Has some but not all public good characteristics eg: TV and radio broadcasting
What are public bads?
They are non excludable and non rival, but provide dis-statisfaction to people who consume such as air pollution
What is a free rider?
Someone who consumes a good without paying for it
What is the free rider problem?
Since public goods are non excludable it is difficult to charge consumers once a good has been provided
What is the process of the free rider problem?
Consumers do not reveal their preferences since they think they can free ride
This means there is no demand curve
There is no incentive for producers to supply the good because it would not be profitable
The free market will fail to provide pure public goods, which is a complete market failure
For Quasi public goods, under provision is still likely to occur which is partial market failure
What are solutions to market failure of public goods?
Government provision - collective provision through taxation
Government funding - the government could fund private provision financed through taxation or charges eg: TV License
Voluntary/charitable donations
Communities may come together to fund eg: private road
What are advantages of government provision?
Equity - all people have access to public goods
Efficiency - collective provision allows Economies of scale
Overcomes the free rider problem
Public sector investment is higher
What are disadvantages of government provision?
Government may lack the information needed to provide the best amount of public goods
Possible diseconomies of scale
Government funding of private sector provision is often costly and wasteful
Government corruption issues
