Public goods Flashcards
(12 cards)
What are the two main characteristics of pure public goods?
The two main characteristics of pure public goods are:
Non-Excludable – You cannot exclude anyone from using the good. For example, street lights benefit everyone in the area, whether or not they pay for them.
Non-Rivalrous – The quantity of the good does not diminish as more people use it. For example, one person using street lights does not reduce the amount of light available to others.
Why are public goods provided by the government instead of the market?
Public goods are often non-excludable and non-rivalrous, meaning individuals cannot be charged for their consumption, and one person’s use doesn’t reduce the availability for others. This creates a free rider problem where individuals have an incentive to consume without paying, knowing that others will contribute. Therefore, governments provide public goods to avoid market failure.
What is the free rider problem in the context of public goods?
The free rider problem occurs when individuals can benefit from a good or service without directly paying for it. Since the good is non-excludable, people can enjoy the benefits without contributing to its cost. If everyone acts as a free rider, there will be under-provision of the public good, as no one has the incentive to pay or supply it.
How do public goods lead to market failure?
Because public goods are non-excludable and non-rivalrous, private firms cannot profitably produce and supply them. If everyone relies on others to contribute (acting as free riders), no one ends up paying, and the good is under-supplied or not provided at all, resulting in market failure.
Give some examples of public goods.
Examples of public goods include:
Street lights (non-excludable and non-rivalrous)
National defense (everyone benefits, regardless of individual contribution)
Public parks (free for all to enjoy without reducing their availability to others)
Why can’t private firms supply public goods?
Private firms cannot supply public goods effectively because they cannot charge consumers directly for using the good (non-excludability), and the good doesn’t diminish in quantity with use (non-rivalrous). Without the ability to charge individuals, there is no incentive for private firms to produce public goods.
What happens when a good is not supplied in a free market due to its public good characteristics?
When a good is non-excludable and non-rivalrous (like a public good), it is not supplied in a free market because private firms cannot profitably provide it. This results in a complete market failure, where there is high demand but no supply, leading to a missing market.
What is complete market failure?
Complete market failure occurs when public goods (which are non-excludable and non-rivalrous) are in demand but not supplied in the market. Since private firms cannot charge for their use, they have no incentive to provide them. As a result, the market fails entirely, and society may experience under-provision of essential goods.
How can market failure in public goods be addressed?
Quasi-public goods can be used to address market failure in public goods. These goods have characteristics of both public goods (non-rivalrous and non-excludable) and private goods (excludable, rivalrous). Governments can regulate or intervene to ensure their supply.
What are quasi-public goods?
Quasi-public goods are goods that have some characteristics of public goods (non-rivalrous and non-excludable) but also show characteristics of private goods (excludable and rivalrous). Examples include roads and beaches, where congestion or access fees can limit availability, making them partly excludable and rivalrous.
How do roads and beaches function as quasi-public goods?
Roads: They can be excludable (e.g., toll roads) and can become rivalrous during peak times when congestion reduces the available space.
Beaches: Beaches can be excludable if they are owned by private entities (e.g., hotels charging for beach access). They can also become rivalrous if overcrowded during peak times, reducing the enjoyment for others.
What is the main challenge with quasi-public goods?
The main challenge with quasi-public goods is that they share characteristics of both public goods and private goods. This can create market inefficiencies, as their provision may require government intervention or regulation to ensure adequate supply, prevent overuse, and avoid congestion.
