1.3.3 - Public goods Flashcards
(8 cards)
What are public goods?
Public goods cause market failure due to the problem of missing markets, public goods have 2 central characteristics non-rivalrous and non-excludable
What are the 3 main characteristics of public goods?
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 ‘free rider problem’
Non-rival consumption: Each party’s enjoyment of the good or service doesn’t restrict consumption from others. The marginal cost of supplying a public good to an extra person is 0. If a public good is supplied to one it is available to all.
Non-rejectable: Collective supply of a pure public good for all means it cannot be rejected by people like defence.
What is a private good?
Private goods cover most types of goods. Consumption by one individual means that it is not available for another to use.
What are the characteristics of private goods?
Excludable: Buyers can be excluded from enjoying the product if they are not willing and able to pay for it. Excludability gives the sellers the chance to make a profit, owners can exercise property rights.
Rival in consumption: One persons consumption of a product reduces the amount left for others to consume and benefit from because scarce resources are used in supplying the product.
Why are public goods not provided by the private sector?
If provisions of public goods was left to the market mechanism then there would be market failure because of the free rider problem (Someone who received the benefit but allows other to pay for it). Private sector firms are unable to supply public goods for a profit.
Once a public good is provided it is impossible to stop all people from receiving the benefit of it. Little reason for pay to pay for consumption of the good.
Free riders leads to under-provision of public goods and therefore market failure.
Why should the government provide public goods?
The non-rival nature of consumption provides a strong case for the government to provide and pay for public goods.
Many public goods are provided free at the point of use and then funded by taxation or a charge.
State provision may help to prevent under-provision and under-consumption of public goods so that social welfare is improved.
If the government provide public goods they may be able to do so more efficiently due to economies of scale.
Providing essential public goods helps affordability and access to important services for lower income households and therefore addresses inequalities of income.
Why should the state not provide public goods?
However if the government becomes a monopoly provider, danger of a lack of efficiency arising from lack of consumption.
There are many other demands on government finances so there is a significant oppotunity cost of public goods being provided. The state funds and the private sector funs public goods through partnerships
What is a Quasi public good?
A quasi-public good is a near-public good. It has some of the characteristics of a public good.
Semi-non-rival: up to a point, more consumers using a park or a road do not reduce the space available for others. Leisure park facilities become overcrowded.
Semi-non-excludable: it is possible but difficult or costly to exclude non-paying consumers fending a park or a beach charging an entrance fee
