Public Goods

Question 1

We know that public goods suffer from the

Answer 1

The free rider problem!

Question 2

The free rider problem leads to:

Answer 2

An inefficient allocation of resources

Question 3

Public goods

Answer 3

Public goods are non-excludable (you cannot stop others from using a public good) and non-rival (you can use the good at the same time as someone else).

E.g. A streetlight. You can’t stop someone using the light from your streetlight so it’s non-excludable. And several people can use the light from the street light at the same time so it’s non-rival.

Question 4

Free-rider problem

Answer 4

Public goods (e.g. streetlights) are non-excludable so others can use your public good for free, without paying.

Therefore, consumers won’t demand a public good, because they can just wait for someone else to buy and will use it for free.

Producers will not supply a public good because consumers will just use it for free, so producers cannot make a profit.

So, public goods will be underprovided by the market.

Question 5

State provision

Answer 5

When the government provides a good (e.g. roads, education, streetlights)