Public and Private goods & Merit and Demerit Goods

Private goods - definition

Goods that firms are able to provide to generate profits, which is only possible as they are both rival and excludable

Excludable - definition

The firm is able to exclude certain customers from purchasing their goods through the price mechanism, as if too expensive, some consumers cannot afford them

Rival goods - definition

Can only be used by a single user. Customers can compete for those goods which are in limited supply - this rivalry generates profits.

Public goods - definition

They are beneficial to society, like streetlights, and aren’t provided by private firms as they’re both non-excludable and non-rivalrous.

Non-excludable - definition

Anyone can access these resources without having to pay for them, as there’s no private ownership.

Non-rivalrous - definition

When one person consuming a resource does not impact another person’s ability to consume it.

Quasi-public good - definition

They are non-pure public goods that have characteristics of both public and private goods.

Are quasi-public goods provided privately or publicly? Are they non excludable or not?

• Partially provided by the free market and have elements of non excludability/ non rivalry

How can roads be a quasi public good?

Once provided, most people can make use of them, but tools can make them semi non excludable.

How can roads become rivalrous?

At high levels of demand, consumption by one individual can reduce the benefit to others by limiting the availability of roads due to increased congestion

How are quasi public goods funded?

By a combination of gov reserves and user fees

How can technology affect the cost of public goods?

They can create cost effective ways to price once public goods, turning them into quasi or private

Hope is technology non rivalrous but excludable? Example: TVs

Tv broadcasts through subscriptions is non rivalrous, as ones consumption doesn’t affect another’s. However, has made it excludable as some are unwilling to pay

How can technology minimise the free rider problem with public goods? Roads

Technologies like number plate recognition and cameras on motorways reduces free riding behaviour by enforcing payment

Also more efficient than traditional tolls, reducing congestion.

What are the steps of tragedy of the commons?

1. Common pool resources are non excludable like public goods

2. However, they are rivalrous as individuals can exploit shared resources until demand exceeds supply, resulting in overconsumption

3. If unsustainable this leads to the damage or depletion of a shared resource

How is fishing an example of tragedy of the commons?

Vessels act in self interest to maximise profits by catching as many fish as possible.

If unregulated this depletes the population and may cause extinction, destroying the market and devastating the fishermen.

Merit goods - definition

Goods and services the government feels people will underconsume and which may be subsided or made free at the point of use.

Why are merit goods underconsumed?

Individuals may not act in their own interest due to imperfect information, they don’t fully understand the private benefits of their consumption

Are merit goods rival, excludable and rejectable?

Yes, they can be rejected, ones consumption does affect another’s, and they can be priced so certain customers are excluded.

What externalities are generated by merit goods ?

Positive consumption externalities, as MSB>MPB

Should people have merit goods even if they cannot afford them?

Yes, society judges that people should have merit goods regardless of their ability to pay.