Public Goods

Public Goods

PUBLIC GOOD= a good that possesses the characteristics of non-excludability and non-rivalry in consumption
1. Non-excludability means the benefits of the public good cannot be confined to just those who have paid for it. So, those who don't pay can still enjoy the benefits of consumption for no financial cost. This is the free-rider problem
2. Non-rivalry in consumption means that one person consuming a public good does not reduce availability for others, so we all consujme the same amount of public goods even though are valuation of their benefits may differ
3. Examples~ flood control systems, street lighting, lighthouse protection and the national defence services
FREE-RIDER PROBLEM= where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods
Quasi-public goods
1. QUASI-PUBLIC GOOD= a good that possesses some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability
2. PRIVATE GOOD= a good that is both excludable and rival in consumption
3. e.g. a national park such as the Lake District; this is open to all and thus appears non-excludable but it would be possible to exclude consumers by reducing rights of access and charging for entry, as seen in some US national parks. The national park is non-rival up to a point but if certain areas, say a lakeside, becomes crowded the space is increasingly limited so peace and enjoyment will be lessened
Public Goods and market failure
1. COMPLETE MARKET FAILURE= where the free market fails to provide a product at all, i.e. the case of public goods
2. Pure public goods aren't normally provided by the private sector as they wouldn't produce any profit
  1. They also would under-produce quasi-public goods
    1. This is complete market failure
      1. It is therefore up to the government to decide what output of public goods is appropriate for society
        It does this by estimating social benefits from the consumption of public goods
        This is difficult as governments care about winning elections and therefore people's votes and elections are not solely won by government spending plans

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	Created by beth2384 over 10 years ago