2.9 Market Failure - Public Goods Flashcards
1
Q
What are public goods?
A
Public goods are collective consumption goods which have two characteristics:
- 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 - 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
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)
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.