Public goods

Question 1

Public Goods are goods that are consumed Collectively

Answer 1

1. example of public good = flood defence scheme
2. Public goods have two main characteristics:
   - nonexcludability
   - non-rivalry/non-diminishability
3. Other examples = fireworks

Question 2

Private goods are the Opposite of public goods

Answer 2

1. Private goods are excludable and they exhibit rivalry
2. example
3. unlike public goods => u have a choice
4. Most goods = private goods

Question 3

Some public goods can take on the characteristics of Private goods

Answer 3

1. some goods are pure public goods e.g. lighthouses - others not fully= quasi-public good or non pure public good
2. New technology can change a good that once had the characteristics of a public good into a private good

Question 4

Public goods are underprovided by the free market

Answer 4

1. Nonexcludability => free-rider problem
2. What is the free rider problem
3. Price mechanism cannot work if there is free riders
4. Everyone decides to wait and see who will provide and pay for the public good in order to increase the price that they charge. Consumers will undervalue their benefits to try to get a lower price
5. difficult to price a public good
6. producers tend to overvalue benefits of a public good => increase price they charge
7. these probs mean firms are reluctant to supply public goods => cause market problems => market failure
   - positive externalities are a form of public good

Question 5

Some parts of the environment are public goods

Answer 5

look at page 83