economics theme 1 : private and public goods

private goods definition

• once someone has consumed them they cannot be cannot be consumed by another person

• e.g. clothes, bowl of chips

• nearly all goods are private goods

public goods definition

• left to the market will not be produced or supplied by the free market i.e. it is very difficult to make the consumer pay for these

• public goods would be under provided in a free market

2 main characteristics of public goods

• non rivalry - where consumption by one person does not exclude another from consuming that good

• non excludability - no one can be excluded from benefiting (or indeed suffering)

examples of public goods and why it is difficult to charge consumers for them

• footpaths - can’t charge everyone and would be inefficient

• roads - not everyone drives and hard to charge those that do

• traffic lights - not every drives and hard to charge

• street lights - not everyone goes out when its dark

• clean air - hard to charge everyone

• lighthouses - not everyone travels on boats and hard to charge all passengers

what is the free rider problem

• the issue when left up to the market to decide

• why pay for a good or service when you cannot exclude those who refuse to pay

• e.g. if you and 2 out of 3 of your neighbours pay for street lights, your other neighbour that didn’t pay would also benefit without paying anything