Public Goods Flashcards
1
Q
Define a Public Good.
A
- Is a good that is both non-excludable on non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.
2
Q
What does non-rivalrous mean?
A
- This means that when a good is consumed, it doesn’t reduce the amount available for others.
– E.g. benefiting from a street light doesn’t reduce the light available for others but eating an apple would.
3
Q
What does non-excludable mean?
A
- This occurs when it is not possible to provide a good without it being possible for others to enjoy.
- For example, if you erect a dam to stop flooding – you protect everyone in the area (whether they contributed to flooding defences or not.
4
Q
Is a public good over or under-provided in the free market?
A
Under-Provided
5
Q
Why are public goods under-provided in the free market?
A
- Because its characteristics of non-rivalry and non-excludability mean there is an incentive not to pay.
- In a free market, firms may not provide the good as they have difficulty charging people for their use.
6
Q
What is a Free Rider?
A
Individuals have an incentive to use the good without contributing towards the cost.
7
Q
What is the Free Rider Problem?
A
- Means that it is not possible to prevent anyone from enjoying a good, once it has been provided.
- Therefore there is no incentive for people to pay for the good because they can consume it without paying for it.
8
Q
How is the government able to provide Public Goods?
A
- Through taxation
9
Q
Why does the government needs to get involved to provide Public Goods?
A
- Non-profitablity means firms do not provide the product, so there is no good.
- There will be social inefficiency
- So government provides the good out of general taxation.
10
Q
Examples of Public Goods.
A
- National defence
- Street lighting
- Police service
- Flood Defences
