microeconomics 2.10 public goods

made from econplusdal video

what are the 2 characteristics of pure public goods?

they’re non excludable and non rivalrous

what does non excludable mean?

no price can be charged for the public good→ others that haven’t paid for it are not excluded

why can no price be charged for a public good?/why are public goods non excludable?

1) the benefits of consuming the good cannot just be confined to the individual who has paid for it, others who have not paid for the public good can benefit from it
2) there is no cost efficient way of pricing a public good

what does non rival mean?

the quantity of the good available does not diminish upon consumption

what are some examples of public goods?

street lights, flood defences, roads, beaches

explain how the example of street lights is a public good?

-no price can be charged for them because as soon as someone pays, the benefits cannot be confined to just that person, everyone on that street will benefit from the street light
-they’re non rival→ when they’re consumed the quantity available does not diminish for everybody else

what problem do the 2 characteristics of public goods cause?

the free rider problem

what is the free rider problem?

when individuals have incentive to not contribute at all to the provision of public goods→ as they can wait for others to contribute ot the making of the good and then free ride off their contributions→ they know they can do this as they know the benefits of the public good cannot just be confined to the person who has paid

what does a continued and large free rider problem create?

missing markets

what is a missing market?

when lots of people begin to ‘free ride’ and wait for others to pay towards the provision of public goods→ means that eventually no one will pay for the goods→ therefore there will be little incentive for firms to make public goods→ no supply of public goods in the free market→ leads to missing markets and complete market failure (there’s demand but no supply)

what is a quasi public good?

-use as an evaluation point for questions of this nature
-it is a good that sometimes shows the characteristics of a pure public good (Which are?) or sometimes shows that characteristics of private good (can be excludable and rival)

examples of quasi public goods?

roads
beaches

how are roads a quasi public good?

-they can be excludable through toll roads→ physical or electronic, either way works
-can be rival as roads can be busy, especially during peak times→ space on the roads for ohers does diminsh upon consumption
-but they’re paid for by everoyne via road tax so semi public????????????

what is the evaluation points for public goods?

-some public goods many not be pure, they may actually be quasi, meaning that their provision may be given via private instead of having to be done by the government allocating resources
-the role of technology→ it can help provide a cost effective way to price→ meaning it can turn pure public goods to private goods as people can be priced out via cost, making it excludable