2.9 Market Failure - Public Goods Flashcards

1
Q

What are public goods?

A

Public goods are collective consumption goods which have two characteristics:

  1. They are non-rivalrous
    (When one person consumes it, the available quantity won’t be reduced)
    The marginal cost of supplying a public good to an extra person is zero
  2. They are non-excludable
    (Not possible to prevent non-payers from consuming the good)
    These non-payers are called “free-riders”, this means that the free riders can enjoy the benefits of consumption of the good at no direct financial cost to them.
    EG. A public good: streetlight
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2
Q

What are Quasi-Public goods?

A

Is EITHER non-rivalrous OR non-excludable.
–> can NOT be both.
EG.
Police force - It is non-excludable, but it IS rivalrous (limited police officers, so available quantity WILL be reduced)

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3
Q

Why does government have to provide public goods?

A

No profit maximiser firm would be willing nor able to provide the good. They would not allocate any resources to the market and this would lead to a missing market.

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