Lecture 4 - Public Goods Lecture Notes

Flashcards about Public Goods

What is non-rival consumption?

If the good is used by one person, it does not prevent it from being used by another.

What is non-excludability?

It is not possible to exclude any individual from the benefits of a good (without incurring great cost).

What are private goods?

Have the property of rival consumption and excludability.

What are pure public goods?

Have the property of non-rival consumption and non-excludability.

What is market failure?

Reason for public provision of public goods.

What does exclusion via prices result in?

Results in underconsumption for non-rival goods when charging is possible.

What does non-exclusion result in?

Results in the problem of undersupply when charging is not possible.

What is the free rider problem?

Reluctance of individuals to contribute voluntarily to the support of public goods.

What is a pure public good?

Perfectly non-rival consumption and non-excludability.

What is the effect of non-rival consumption?

There will be underconsumption and/or undersupply.

What is the effect of non-excludability?

There will be a free rider problem and undersupply.

What is the advantage of user charges?

Those who benefit bear the costs.

What is the advantage of uniform provision?

Saves on transaction costs.

What is the advantage of queuing?

Goods are not allocated on the basis of who is the wealthiest.

What is the efficient condition for public good provision?

The marginal social benefit of the public good equates the marginal social costs.

What does free-riding with public goods involve?

Understating the preference for the public good with the intention of shifting the burden of payment onto other consumers.

What is optimality?

Quantity G such that sum of marginal benefits (willingness to pay) equals marginal cost.