Public Goods - A-Level Economics
Public Goods
Public Goods are non-‐rivalrous and non-‐exclusive goods which are not provided in the free market.
- Non-‐ exclusive means that the goods cannot be confined to those who have paid for it. In other words, once a good has been produced for the benefit of one person, it is impossible to stop others from benefiting.
- Non-‐ rivalrous means that consumption of the good by one person does not reduce the availability of the good for others. In effect, the good is non-‐diminishable.
Therefore, once a public good has been provided, the cost of supplying it to an extra consumer is zero. Examples of public goods include national defence, public parks, firework displays and street lighting.
Private Goods
Private Goods are the opposite of public goods-‐ they are rivalrous and exclusive.
Some goods might show characteristics of public goods, but are not necessarily public goods. For example, a football match is non‐rivalrous in the sense that you watching it does not stop others watching it. However, it is excludable because producers can exclude people who have not bought a ticket or not paid for the sports television channel.
N.B. The NHS is not a public good, because there is rivalry in consumption.
Provision of Public Goods
Public Goods are under-‐provided due to two main problems:
Free Rider Problem
Once a public good has been provided, it will automatically be provided for all. Hence, there is no incentive for anyone to pay for it-‐ most consumers will wait for someone else to consume the good and then free ride by consuming the good for free. The market will fail because firms will have no incentive to supply the good in the first place.
Valuation Problem
It is very difficult to measure the value obtained by consumers who purchase public goods. Consumers will under-‐value the benefit gained from a public good to lower the price, whilst producers will over-value the benefit gained from a public good to increase the price. The uncertainty over valuation makes it hard to establish a market price, which will deter firms from providing public goods.
Therefore, the lack of incentive and the difficulty of valuation mean that firms do not tend to provide public goods, and therefore the market would simply fail.
Market Failure and Government Intervention
Without government intervention, the quantity of public goods provided would be less than the amount required to reach the social optimum position. Therefore, there will be market failure.
In order to correct this market failure, the government intervenes. The government raises funds from taxes to pay for the provision of the public goods, which ensures that they are not under-‐provided.
Public goods are goods and services that are non-excludable and non-rivalrous, meaning they cannot be excluded from consumption by one person and their consumption does not reduce the availability for others.
Examples of public goods include national defense, street lighting, and public parks.
The free-rider problem occurs when people benefit from public goods without paying for them. Since public goods are non-excludable, people can consume them without contributing to their production and maintenance.
Private goods are excludable and rivalrous, meaning they can be excluded from consumption by one person and their consumption reduces the availability for others.
Since public goods are not provided by the market due to the free-rider problem, governments may intervene to provide and finance them through taxes and other mechanisms.
The tragedy of the commons is the overuse and depletion of common resources, such as public goods, due to the free-rider problem and lack of private ownership.
A public good is non-excludable and non-rivalrous, while a common-pool resource is non-excludable and rivalrous.
Critics argue that government provision of public goods may lead to inefficiencies, corruption, and the misallocation of resources.
Public goods are a form of market failure because they are not provided by the market due to the free-rider problem, which can result in underproduction and underconsumption.
Some strategies to improve the provision of public goods include the use of technology, public-private partnerships, and targeted subsidies.
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