1 - Market Failure - Public Goods Flashcards
(15 cards)
What are private goods?
Goods and services supplied and sold through markets by private sector businesses
Characteristics of private goods
- excludable
- rival
- reject able
Characteristics of public goods
- non-excludable
- non-rival
- non-reject able
What does non-excludable mean?
Once a good is provided its impossible to prevent people from using and benefiting from it
- free rider problem
What does non-rival mean?
Consumption of good by one doesn’t prevent or reduce benefits to another person consuming the good
What does non-rejectable mean?
Collective supply of pure public good means it can’t be rejected by the people
Pure public good
Non-excludable and non- rival all the time
Examples of pure public goods
- national defence
- security
- mass vaccination
What are quasi-public goods?
Have some but not all public good characteristics
Examples of quasi-public goods
- tv and radio broadcasting
- toll bridge
What’s the free rider problem?
When there are some people who consume a good without paying
What does the free rider problem mean for the market?
The market is missing
- resources not allocated to produce public goods
Free market will fail to provide pure public goods (complete market failure)
- no incentive for producers to supply good as its not refutable
Solutions to market failure of public goods
- gov provision
- gov funding
- voluntary donations, eg. RNLI
- communities may pay collectively, eg. private road
Advantages of gov provision
- equity, everyone has access to no matter what
- efficiency, allows economies of scale
- overcomes free rider problem/ missing market
- public sector investment is higher
Problems with gov provision
- lack info
- diseconomies of scale
- corruption issues
