3. Public goods, private goods and quasi public goods

Features of public goods

Non rivalrous

Non excludable

Features of private goods

Rivalry and excludable

Excludability

The degree to which a good can be limited to only paying customers

rivalry

The consumption of the good by one person reduces the availability for others

what problem does non excludability lead to

free rider problem

Why do public goods result in a market failure?

A firm’s objective is profit max

Non-excludability will mean that there are free riders who benefit from your product without paying.

Non-rivalry will mean that people are not competing to benefit from your product

missing market/complete market failure

free goods

abundent in supply, no opportunity cost eg the sky, air

economic goods

have a degree of scasrcity and opportunity cost

the free rider problem

the burden on a shared resource that is created by its use or overuse by people who aren't paying their fair share for it

examples of free rider problem

pirating music or film

using public transport without paying

what is a potential ultimate negative consequence of the free rider problem

If too many agents freeride there will be insufficient resources for all consumers causing complete market failure

how does the free rider problem contribute to the tragedy of commons

The free rider problem worsens the tragedy of the commons by allowing individuals to overuse shared resources without private costs and therfore any accountability, leading to depletion and degradation.

example of how the free rider problem contribute to the tragedy of commons

a fisherman may take a high catch and free ride on other fishermen who are more concerned with preserving sustainable fish stocks

tragedy of commons

a situation in which individuals with access to a public resource act in their own interest and, in doing so, ultimately deplete the resource

tragedy of commons and environmental market failures

shared environmental resources are overused, exploited, and eventually depleted. for example, overfishing, deforestation, water and air pollution, climate change