Public goods

Question 1

What is the difference between complete and partial market failure

Answer 1

Complete market failure means with no government intervention, the market would not exist
Partial Market failure mean without government intervention, there would be an inefficiency in the market

Question 2

What are the 2 characteristics of a public good

Answer 2

Non rivalrous
Non excludable

Question 3

Explain what non rivalrous means

Answer 3

When the good is consumed, it doesn’t reduce the amount available to others
e.g. street lights

Question 4

What does non excludable mean

Answer 4

Everyone can enjoy the good, even if they didn’t pay for it
e.g. flood defences

Question 5

Explain the free rider problem

Answer 5

Because the goods are non excludable, there is an incentive to not pay for the good as consumers can get it for free
Therefore firms don’t want to produce public goods because they won’t make profit
This causes complete market failure, consumption below the social optimum

Question 6

What is a private good

Answer 6

Good that is both excludable and rivalrous
e.g. a burger

Question 7

How are public goods shown on a diagram

Answer 7

Private optimum is at 0 quantity so big net welfare loss

Question 8

Explain quasi-public goods

Answer 8

Goods that are non-rivalrous and excludable but do not have perfect excludability as people can break the law to get the product for free easily e.g. sports broadcasting on TV

Question 9

What determines whether quasi goods will be supplied by private sector businesses in the free market

Answer 9

Whether they are excludable enough to warrant a high enough market price