PUBLIC GOOD= a good that possesses the characteristics of
non-excludability and non-rivalry in consumption
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
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
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
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
PRIVATE GOOD= a good that is both excludable and rival in consumption
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
COMPLETE MARKET
FAILURE= where the free market
fails to provide a product at all,
i.e. the case of public goods
Pure public goods aren't normally
provided by the private sector as they
wouldn't produce any profit
They also would under-produce
quasi-public goods
This is complete market failure
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