Public Goods Flashcards
(16 cards)
What is the definition of a public good?
Public goods are products which exhibit the characteristics of non excludability and non rivalry in consumption.
Wat are Pure public goods ?
Display the characteristics of non rivalry and non excludability fully, a situation which is not common
Market for pure public goods do not form (missing markets)
Quasi public good
Nearly public goods, having some of the characteristics of a pure public good. The market would fail to efficiently allocate resources to provision of quasi-public goods due to an under allocation of resources.
Key characteristics of a public good
1.non excludability
2.non rivalry
3.non rejectability
What is meant by Non excludability
Occurs when individual consumers can not be excluded from consuming a product
This creates the ‘free rider problem’ as consumers have non incentive to pay for the service as they are unable to be excluded from consuming it
What is meant by non rivalry?
Occurs when consumption of a product/resource by one individual does not limit the consumption of the product/resource by other individual
What is meant by nonrejectability
Describes a situation where individuals consumers are unable to reject consuming the good/service, even if the consumer would prefer not to consume it
What is meant by zero marginal cos to supply (additional characteristics)
Once supplies, the cost too an additional individual is 0.
With pure public goods the full costs are encountered when supply for 1 individual and any number of additional consumers does not add any additional costs
What is the free rider problem
A term used to describe a consumer who benefits from consuming a product even though they do not contribute to provision, because they do not pay
Supply of quasi public goods
Certain products would experience an under allocation of resources, due to under production of quasi public goods, because there will only be a limited willingness by private producers to supply quasi public goods, because there would be limited willingness and ability to pay by consumers/users.
What are the properties of a common access resource
Common access natural resources are non excludable, to some extent, and to some extent rivalrous
Examples of common access resources
Freshwater resources: essential for drinking water resources, agriculture and industrial processes
Atmosphere:used by economic agents, particularly for access to fresh air and natural cycle including carbon emissions
Forests: provide timber, natural habitat and help regulate climate
Forests:
What is meant by the term sustainability ?
The ability to meet the needs of the present generation without compromising the ability of future generations to meet their own needs
What is the issue with common access resources?
CAR’s lack a pricing mechanism, meaning there is no direct cost to the user cost for their use. This often lead to overuse or depletion
For example: 1.over fishing
2. Deforestation
What is an economic good?
Economic goods are scarce as limited resources have been used in production
What is a free good?
One that is abundant and without any cost or opportunity cost
