Public Goods

 

Definition of Public Good: Public goods have two characteristics:

1. Non-rivalry: This means that when I consume a good, it doesn’t reduce the amount available for others.
   - E.g. benefiting from a street light doesn’t reduce light for others, but eating an apple would.
2. Non- excludability: This occurs when it is not possible to provide a good without it being possible for others to enjoy. E.G erecting a dam to stop flooding, or providing law and order.

 

Free Rider Problem

The problem with public goods is that they have a free rider problem. This means that it is not possible to prevent anyone from enjoying a good once it has been provided. Therefore there is no incentive for people to pay for the good because they can consume it without paying for it.

• However this will lead to there being no good being provided.
• Therefore there will be social inefficiency.
• Therefore there will be a need for the govt to provide it directly out of general taxation.

 

Examples of Public Goods

• Public Defence,
• Street Lights,
• Police service

Quasi-Public Goods

These are goods which have an element of non-excludability and non-rivalry, roads are a good example. Once provided most people can use them, for example, those who have a driving licence. However, when you use a road, the amount others can benefit is reduced to some extent, because there will be increased congestion.

Essays and Revision Notes on Market Failure

• Market Failure
• Negative Externalities
• Positive Externalities
• Public Goods
• Merit and Demerit Goods
• Policies to Overcome Market Failure
• Tax on Negative Externality Diagram
• Subsidy on Positive Externality Diagram
• Market Failure at Tutor 2U
• Cost Benefit Analysis