Topic 5.3 Public goods, private goods and quasi-public goods Flashcards
Public goods
Public goods are products/services that have 2 main characteristics: non-excludability and non-rival
Non - excludability: means that it’s not possible to prevent people from using the good once it’s provided. For example, once a lighthouse is built, its light is available to all ships passing by, regardless of whether they contributed to its construction.
Non-rivalry: implies that one person’s consumption of a good doesn’t reduce its availability to others. For instance, someone benefitting from a street light doesn’t diminish the amount of light another person could use.
Free rider problem
when individuals can benefit from a good/service without paying their fair share of it.
Private Goods
They are rival and excludable e,g a chocolate bar. Property rights allow it to be yours and can only be consumed by you.
Quasi (non-pure public) Goods
They have characteristics of both public and private goods. For example beaches, after a certain point it becomes too crowded, and consumption becomes rivalrous.
Why can public goods (with no government intervention) lead to complete market failure
This is because of the free rider problem - where consumers benefit from not paying their fair share. So if a private firm were to provide public goods, consumers in order to maximise their utility will wait for others to pay and exploit that. But when everyone thinks that way, no money is paid to the firm thus the firm doesn’t provide any of the goods at all therefore there is a missing market thus market failure.
Evaluation of public goods
Since these public goods are very desirable but there is an underprovision as only governments can provide them, we can possibly implement quasi-public goods to be privatised. For example, you can make roads excludable through tolls. Examples such as these will incentivise firms to produce these goods/services in order to make profit out of the excludable and rival aspects of the good.
Impact of technology
Technology has made it possible to make public goods have rival and excludable characteristics (for example, cameras on roads to implement toll tax.
