Public goods Flashcards
What is a public good?
A public good is a good which is non-rivalrous and non-excludable, meaning they are underprovided by the private sector due to the free-rider issue.
Why do public goods cause market failure?
Public goods cause market failure due to the problem of missing
markets
What are the three main characteristics of public goods?
1) Non-excludability
2) Non-rivalrous
3) Non-rejectable
What is non-excludability?
Benefits derived from pure public goods cannot be confined solely to those who have paid for it. Non-payers can enjoy the benefits of consumption at no financial cost to themselves – economists call this the ‘free-rider’ problem
What is non-rival consumption?
Each party’s enjoyment of the good or service does not diminish others’ enjoyment– in other words the marginal cost of supplying a public good to an extra person is zero. If a public good is supplied to one person, it is available to all.
What does non-rejectable mean?
The collective supply of a pure public good for all means that it cannot be rejected by people, an example is a national nuclear defense system or major flood
What is a quasi-public good?
A near-public good. It has some of the characteristics of a public good.
What are the qualities of a quasi-public good?
Semi-non-rival: up to a point e.g. more consumers using a park, beach or road do not reduce the space available for others. But eventually beaches become crowded as do parks/leisure facilities. Open-access Wi-Fi networks become crowded
Semi-non-excludable: it is possible but difficult or costly to exclude non-paying consumers. E.g. fencing a park or beach and charging an entrance fee; or building toll booths on congested road routes
Why are public goods not provided by the market sector?
Pure public goods are not normally provided by the private
sector because they would be unable to supply them for a profit.
It is up to the government to decide what output of public goods
/ funding of public goods is appropriate for society.
To do this, it must estimate the net social benefits from making
public goods available.
What is the free-rider problem?
Because public goods are non-excludable it is difficult to
charge people for benefitting once a product is available
The free rider problem leads to under-provision of a good and
thus causes market failure.
What are global public goods?
Global public goods benefit every country, irrespective of which ones provide them – they have become more important recently.
What are some examples of global public goods?
1) Security from war, violence, and crime
2) The rule of law, property rights, and contract enforcement
3) Eradication of smallpox, Ebola and other diseases
4) Non use / proliferation of nuclear weapons
5) Agreements/measures towards protection of the ozone layer
What is a public bad?
A public bad has negative effects (externalities) on people and their communities leading to a significant loss of social welfare
What are some examples of public bads?
Spread of infectious diseases such as Ebola
Unauthorized / illegal surveillance by the state
Modern slavery / human trafficking
Environmental threats to the global commons
