Theme 1.3 - Public + Private Goods

Question 1

What are the 3 criteria for a public good?

Answer 1

Non excludable
Non rival
Non rejectable

Question 2

What does the non excludable aspect entail?

Answer 2

People who do not pay are not excluded from benefit
E.g., Free Riders

Question 3

What does the non rival aspect entail?

Answer 3

One party’s enjoyment does not diminish another party’s enjoyment
Availability to 1 means availability to all

Question 4

What is the marginal cost of supplying a public good to one extra person?

Answer 4

0 (Non rival)

Question 5

What is a free rider?

Answer 5

Somebody who benefits from good without paying

Question 6

Why is it difficult to prevent the free rider issue?

Answer 6

Once a public good is provided, it is impossible to stop people from benefitting from it
Therefore very little incentive to pay for consumption

Question 7

Why is it argued that the govt should provide public goods?

Answer 7

Free at point of use + funded by taxation
Prevents under provision + under consumption of merit goods
Helps affordability + access to services in low income households
Only the state can force people to pay
Services such as NHS create mass employment

Question 8

Why is it argued that the govt shouldn’t provide public goods?

Answer 8

National debt - Can govt afford provision
Large opportunity cost - Where must spending be reduced
Govt monopoly provider, lack of competition + efficiency
Tax may increase nationwide in order to benefit a small sample size