1.3.3 Public goods

What are the characteristics of all pure public goods?

1. Good is non-rival (the amount one person consumers doesn’t affect the amount that another person consumes)

2. Good is non-excludable (one the good is made available for one person, it is not possible to restrict others from consuming it - free rider problem occurs)

What is the free-rider problem?

It means that a rational consumer will be willing to let someone else pay for the provision of a good/ service but still enjoy all the benefits.

What is a consequence of the free rider problem?

As a consequence, it logically follows that no -one will be prepared to pay for it - there will be no demand curve.

Give some examples of public goods

• street lighting

• Flood defence systems

• Lighthouse protection

• Police services

• Air defence systems

• Roads/ motorways

Explain the difference between a public good and private good

A public good is non‑rivalrous and non‑excludable. This means one person’s consumption does not reduce the amount available for others (non-rivalrous), and it is not possible to prevent non‑payers from consuming it (non-excludable). Examples include street lighting and national defence.

A private good is rivalrous and excludable. One person’s consumption reduces the amount available for others (rivalrous) , and producers can prevent non‑payers from accessing it (excludable). Examples include clothing, food, and cars.

What are Quasi- Public goods? Give examples

Goods which are public in nature, but do not full exhibit the features of non-excludable and non-rivalry.

E.g they may become rival at peak times when congestions occurs (roads/ beaches/ galleries)

What is the problem for the market mechanism for ‘pure’ public goods, as well as some ‘quasi’ public goods?

What is the solution?

Not enough incentive for the private sector to produce such goods - missing markets would therefore occur.

Solution: the government therefore provide these goods for collective consumption and finances them through general taxation.

How did Adam Smith (a free marketer) explain this?

‘Erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.’

Define a non-excludable good

A good that once the good is made availed to one person it cannot b restricted for others