Public Goods

Question 1

Characteristics of public goods

Answer 1

• Non excludable
• Non rejectable
• Non rival

Question 2

Non excludable

Answer 2

Benefits derived from pure public goods cannot be confined solely to those to those who have paid for it. Non payers can enjoy the benefits of consumption at no financial cost to themselves - economists call this the free rider problem.

Question 3

Non rival

Answer 3

Each party’s enjoyment of the good or service does not diminish others enjoyment - in other words the marginal cost of supplying a public good to an extra person is zero. If a public good is supplied to one person, it is available to all.

Question 4

Non rejectable

Answer 4

The collective supply of a pure public good for all means that it cannot be rejected by people, an example is national nuclear defence system or major flood defence projects.

Question 5

Examples of public goods

Answer 5

Public goods are also known as collective consumption goods

• Sanitation infrastructure
• Flood defence
• Crime control for the whole community
• Public service broadcasting
• Reduced risk of disease from vaccinations

Question 6

Quasi public goods

Answer 6

A quasi public good is a near public good - it is has many but not all the characteristics of a public good.

Semi non rival: up to a point, more consumers using a park, peach or road do not reduce the space available for others. But eventually the (beaches) become crowded.

Semi non excludable: it is possible but difficult or costly to exclude non paying costumers. E.g. fencing a park or beach and charging an entrance fee; or building toll booths on congested road routes.

Question 7

Public goods, market failure and free riders

Answer 7

With public goods, private sector markets may fail to supply in part or in whole optimum quantity of public goods.

• Pure public goods are not normally provided by the private sector because they would be unable to supply them for a profit.
• It is up to government to decide what output public / funding of public goods is appropriate for society.
• To do this, it must estimate the net social benefits from making public goods available.

Question 8

The free rider problem

Answer 8

• Because public goods are non excludable it is difficult to charge people for benefitting once a product is available
• The free rider problem leads to under provision of a good and thus causes market failure

Question 9

The changing nature of public goods

Answer 9

Question 10

Global public goods

Answer 10

Benefit every country, irrespective of which ones provide them - they have become more important recently

• Security from war, violence and crime
• The rule of law, property rights, and contract enforcement
• Eradication of smallpox, Ebola and other diseases
• Agreements/ measures towards protection of the ozone layer