4.1.8.3 Public & Private goods

What are public goods?

goods that are:

Non-rival goods

• where consumption of the good does not reduce the amount available for consumption by others

Non-excludable goods

• where, once provided, it is impossible to stop other individuals from using them

What are some examples of public goods?

• National defence. If you protect the country from invasion, it benefits everyone in the country.

• Street lighting- if you provide light at night, you can’t stop anyone consuming the good. Walking under a streetlight doesn’t reduce the amount of light for others.

• Police service- If you provide law and order, everyone in the community will benefit from improved security and reduced crime.

• Flood defences – Protecting the coastline against flooding provides benefits for the whole community.

• The internet. - Once websites are provided, everyone can see the website for free, without reducing the amount available to others.

What’s the free-rider problem?

• free-rider = someone who benefits from a good/service w/out paying for it.

• enough people can enjoy a good w/out paying for the cost —> danger that good will be under-provided

Private goods, are goods that are:

Rival goods

• where consumption of the good reduces the amount available for consumption by others

Excludable goods

• where, once provided, it is possible to stop other individuals from using them

What are examples of private goods?

Rival goods:

• A ticket to the theatre or a meal in a restaurant or pay-per-view sporting events are private goods because buyers can be excluded from enjoying the product if they are not willing and able to pay for it.

Excludable goods

• An airplane ticket only allows one person to fly. Thus, using an airplane ticket excludes others from using the same ticket.

• The airplane ticket is also excludable because the use of the airplane ticket is limited to the person who purchased it.

What are quasi-public goods?

• type of good/service that exhibits some but not all of the characteristics of a pure public good

what’s the rivalry & excludability like for quasi-public goods?

• Rivalry - consumption of 1 person may limit the availability or quality of the good to others EG a park may be open to everyone but if it’s crowded the experience for each person may be diminished

• Excludability - QPGs are partially E.G anyone can use a public park, some parts of the park may require a membership (sports facility)

What is technical change?

• the process of innovation, invention and the widespread use of technology in society.

How can technical change lead to markets providing private goods?

• markets providing non-excludable and non-rival goods

• means public goods can become private goods over time.

• e.g example, the ULEZ zone in London, as you are now being excluded from using the roads unless you pay for the charge.