2.9 Market Failure - Public Goods

Question 1

What are public goods?

Answer 1

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

Question 2

What are Quasi-Public goods?

Answer 2

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)

Question 3

Why does government have to provide public goods?

Answer 3

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.