Chapter 7: Public goods Flashcards Preview

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Flashcards in Chapter 7: Public goods Deck (16)
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1
Q

Why can a market system fail?

A

Due to the presence of market dominance, factor immobility, inequality, trade unions, the existence of externalities and the provision of public goods.

2
Q

What goods does the market system mainly supply?

A

Private goods

3
Q

What are private goods?

A

Goods that are excludable and rival in consumption.

4
Q

What does ‘excludable’ mean?

A

If one person consumes it then another cannot, the benefits of the product are exclusive to the user.

5
Q

What does ‘rival in consumption’ mean?

A

An increase in one person’s consumption means there is less available for another.

6
Q

What are public goods?

A

Goods that are non-excludable and non-rival.

7
Q

What does ‘non-excludable’ mean?

A

Once provided, nobody can be excluded from the benefits of a public good.

8
Q

What does ‘non-rival’ mean?

A

If one person consumes more, it does not mean there is any less for others.

9
Q

What are some examples of public goods?

A

Defence, law and order, lighthouses and street-lighting.

10
Q

What happens to the total cost of production of a public good as the number of consumers increases?

A

It does not increase.

11
Q

What is a quasi-public good?

A

It has elements of both a private and public good.

12
Q

How are roads quasi-public goods?

A

They have the characteristics of a public good up until the point where the become congested, thereafter they become excludable and rival.

13
Q

Why can private goods be provided in optimal quantities by the market system?

A

Individuals are willing to pay for goods that give benefits that are exclusive to them.

14
Q

Why does the market system fail to provide public goods?

A

Public goods are available to everyone and no individual can be excluded from their benefits.

15
Q

What is a free-rider?

A

Someone who receives the benefit of a good but allows others to pay for it.

16
Q

What is the government’s intervention strategy for the free-rider problem?

A

Governments levy taxes onto people to force them to pay for public goods.