ecawns market failure

public goods

3 traits (2 main)

*non excludability

*non rivalry

*non rejectability

non excludability (def)

def: difficult to exclude non payers from consumption/use of g/s

non excludability (how it lead to mf)

free rider problem → non provision

non rivalry (def)

con/use of g/s by 1 consumer

→ x reduce qty/qly avail to others

non rivalry → how it lead to MF

should be provided free to maximise society welfare

how all 3 traits lead to mf

MC=0

MC of producing not 0

if left to free market → missing market (non provision) → complete mf

examples of pub goods

1. national defence

2. street lighting network

3. lighthouse

4. flood control dams

5. public drainage

govt int - direct provision

• provide goods at Qs

• maximise society welfare

• govt → non profit → x charge cop —> finance thru tax revenue/ask them pay

govt int - direct provision - limitations (1)

imperfect info

→ info on optimal qty

→ free rider — consumers x express demand for public good

→ govt dk how much consumers value pub good

govt int - direct provision -unint conseq (2)

opp cost

productive inefficiency

→ high admin costs — administrative red tape, over bureaucratic govt org, lack of incentive to keep costs low