1.3.3 - public goods

private vs public goods

Public:

non-excludable (once its produced you can’t stop ppl from benefitting)

non-rivalrous

Private:

excludable

rivalrous

excludable = consumers can be prevented from consuming the product if they are unwilling/unable to pay

rivalrous = one person’s consumption will reduce the amount left for others to consume (thus reducing their satisfaction)

if the allocation of public goods was left to the free market mechanism…

…there would be market failure

because of the free rider problem

explain the free rider problem

1. public goods = non-excludable

2. no incentive to pay for consumption (can use someone else’s for free)

3. individuals = rational; wait for someone else to provide it

4. no one provides it

5. public goods = MISSING MARKETS

examples of public goods

national defence, lighthouses, street lights

how do economists think we should solve the free rider problem

the government (public sector) should provide public goods

another type of public good (name)

quasi-public goods (aka non-pure public goods)

what is a quasi-public good

has some but not all features of a public good

example of quasi-public good

roads:

1. non-rivalrous initially (one extra driver doesn’t prevent others)

2. until congestion

3. becomes rivalrous (less ppl can move)

1. non-excludable sometimes (free to use)

2. until tolls

3. becomes excludable (have to be willing and able to pay)

what do people think the goverment should do about quasi-public goods and why

should provide some quasi-public goods

• no incentive for firm to build them (still public) even tho they may be rivalrous/excludable

• they still need to be provided

• gov should provide