2.10 Public goods

• Public goods - missing market no one wants to pay for the good/service because everyone can use them. (e.g. street lamps, lighthouse, parks, beaches.)
• Private goods: Are excludable and rival(e.g. Private education/healthcare, all goods that have a price)
• Quasi-public goods: Have characteristics of both public and private goods. (e.g. public beach, but becomes rival if overcrowded)
• Non-excludability: Individuals cannot be excluded from consuming the good even though they have not paid for it (e.g. a lighthouse)
• Zero marginal cost: There is no additional cost of providing the good to another individual.
• The free rider problem: An individual cannot be excluded from consuming a good, so consumers have no incentive to pay for it. No actual market is involved.
• Information failure - insufficient or incorrect or missing information which leads individuals to make incorrect/irrational decisions.(e.g. lack of information to fix a roof.)
• Public good: A public good is a non-excludable/non-rejectable and is non-diminishable/non-rival, the consumption of a good by one individual does not affect the amount available to another individual (e.g. street lights, defence, flood defences, state education, NHS)
• Free rider problem

  People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit.
• Non~diminishability/non~rivality

  A characteristic of public goods; one person's use of the good does not prevent someone else from using it.
• Non~excludability

  A characteristic of public goods; someone cannot be prevented from using the good.
• Non~rejectability

  A characteristic of public goods; people cannot choose not to consume the good.
• Private goods

  Goods that are rival and excludable.
• Public goods

  Goods that are non-excludable, non-rivalry, non-rejectable and have zero marginal cost.
• Quasi~public goods

  Goods which aren't perfectly non-rivalry/non-excludable but aren't perfectly rivalry/excludable.
• Whether public goods should be provided by the government often depends upon...

  1. The opportunity cost of providing the good.

  2. Cost of provision. Some people believe that the taxes we pay for the NHS are a small cost for such an excellent service.

  3. The risk of underprovision.

  4. Public perception. During Covid-19 NHS was highly valued, other times it was seen as an unnecessary expense.

  5. Politics. Left-wing Govs prioritise the provision of public goods.