Public goods, externalities, market failure Flashcards
What is a public good?
good or service
consumed simultaneously by everyone
no one can be excluded
What does it mean when it can be consumed simultaneously
does not reduce quantity
non-rival
A good is non-excludable if it is
impossible or extremely costly to prevent someone from benefiting from a good
What are the 4 classifications of goods?
Private good
Natural monopolies
Common resources
Public good
What are the characteristics of a private good?
rival
excludable
What are the characteristics of common resources
rival
non-excludable
What are the characteristics of natural monopolies
non-rival
excludable
What are the characteristics of public goods
non-rival
non-excludable
Because of what problem, then private firms do not want to produce public goods?
free-rider
What is the free-rider problem?
no private company wants to produce a public good. No incentive
Quantity of the good a person is able to consume is not influenced by the amount the person pays for the good
What is the significance of the free-rider problem
government has to take over to produce it
A free rider is a person who
consumes a good without paying for it
What helps to pay for public goods
taxes
An externality is a
consequence of an economic activity
spills over affect third party
A negative externality imposes an
external cost
