Public goods 1.3.3

What are two characteristics of pure public goods?

• Non-rivalry

• Non-excludability

What is meant by a good being non-rival?

Consumption of a good by one person does not reduce the supply available for others.

What is meant by a good being non-excludable?

The benefits derived from a good cannot be confined solely to those who have paid for it. Non payers can enjoy the benefits.

What are some examples of pure public goods?

• Sanitation infrastructure

• Flood defense projects

• Crime control for a community/ police

• Reduced risk of disease from vaccinations

• Freely available knowledge from online learning

• Public service broadcasting services

• Irrigation systems benefiting a whole community

• National parks/ natural environments

What are characteristics of private goods?

• Excludable- sellers can easily prevent individuals who have not paid for the good from consuming it

• Rival in consumption- when one person consumes or uses a private good, it reduces the quantity available for others to consume.

• Pricing & profit- private goods are typically priced in markets based on supply & demand, and consumers pay for what they consume.

What are some examples of private goods?

• Private gyms

• Exclusive clubs

• Tickets to an event

• Meals in a restaurant

Why does a public good being non-excludable mean that they are financed by the government?

Taxation ensures that everyone contributes to the funding of public goods, preventing free-riding and ensuring that the costs are distributed across the entire population.

Why does economies of scale mean that governments help finance public goods?

Producing public goods for a larger proportion can lead to lower per capita costs. Taxation can be more cost-effective in providing these goods compared to private goods or individual transactions due to a broad tax base to collect funds from.

Why does the public interest and equity of public goods mean the government finance them?

Taxation allows governments to allocate resources based on societal priorities and ensure that public goods are provided in a way that promotes social welfare and equity.

What are the reasoning for higher state spending on public goods?

• Economies for scale- It is more efficient to provide public goods at a state level leading to a lower long cost run per user

• Access and affordability- the absence of profit motive makes public goods affordable which is important for equity

• Investment- public goods can lead to higher private sector investment such as the regeneration of economically deprived areas attracting entrepreneurs

How are advances in tech changing the distinction between some public & private goods?

• In some cases, encryption allows suppliers to exclude non-payers- although the product remains non-rival

• The open source/ creative commons movement has made most digital information public good in nature- available to all, this information is non-rival ad non-excludable.

What is a quasi-public good?

It is a near-public good. It has some of the characteristics of a public good.

What are characteristics of a quasi-public good?

• Semi-non-rival

• Semi-non-excludable

What is an example of something being Semi-non-rival?

Up to a point, more consumers using a park or road do not reduce the space available. But beaches can become crowded.

What is meant by a good being semi-non-excludable and what is an example?

It is possible but difficult or costly to exclude non-paying consumers such as fencing a park or beach and charging an entrance fee: or toll booths

What are 4 examples of quasi-public goods?

• Crowded beaches

• Toll roads & bridges

• Free Wi-Fi

• Busy urban parks

What are quasi-public goods also known as?

• Near public goods

• Mixed goods

What is the free-rider problem?

As public goods are non-excludable it is difficult to charge people for benefitting once a product is available, because of this free-riders have no incentive to reveal how much they are willing and able to pay. This allows them to continue benefiting from a good without contributing to the cost.

What does the free-rider problem lead to?

Leads to under-provision of a good and thus causes market failure.

Why are pure public goods not normally provided by the private sector?

They would be unable to supply them for a profit.

What are some examples of the free-rider problem?

• Accessing open spaces

• Fare dodging

• Open access to free Wi-Fi

• Tax evasion

• Downloading/ sharing

What are some ways you can overcome the free-riders problem?

• Compulsory taxation to fund collective provision o services- such as national defense systems

• Appealing to people’s altruism and sense of social purpose

• Community solutions for example establishing social norms to manage common pool resources such as fishing grounds and grazing land

• Government legislation- regulations enforceable in law such as fishing quotas, copyright and patent laws to protect intellectual property