1.3.3

• What are public goods

  Public goods cause market failure due to the problem of missing markets. Public goods are also sometimes referred to as collective consumption goods. Public goods are characterised as being both non-rival and non-excludable.
• Private goods

  A private good or service has two main characteristics:

  1. Excludable: A ticket to the theatre is a private good because buyers can be excluded from enjoying product if they are not willing and able to pay for it.
  2. Rival in consumption: Driving a car on a road uses up road space that is no longer available at that time to another motorist. With a private good, one person's consumption of a product reduces the amount left for others to consume and benefit from - because scarce resources are used up in supplying the product.
• Key characteristics of public goods

  These are the opposite to private goods

  1. Excludable: Non-payers can enjoy the benefits of consumption at no financial cost - known as the 'free-rider' problem.
  2. Non-rival consumption: Consumption by one consumer does not restrict consumption by other consumers - in other words the marginal cost of supplying a public good to an extra person is zero. If it is supplied to 1 person, it is available to all.
• Quasi-public goods


  A quasi-public good is a near public good. It has some characteristics of a public good. Quasi-public goods are:

  1. Semi-non rival: up to a point, more consumers using a park or road do not reduce the space available for others. But beaches can become crowded as do parks/leisure facilities. Open access Wi-Fi networks become crowded.
  2. Semi-non excludable: It is possible but difficult or costly to exclude non-paying consumers, e.g. fencing a park or beach and charging an entrance fee; or toll booths.

  So, quasi-public goods are either non-rival or non-excludable, but not both.
• The Free-Rider Problem

  Because public goods are non-excludable it is difficult to charge people for benefitting once a product is made available. People who use the good/ service once it is provided and don't pay are known as free riders. Free riders have no incentive to reveal how much they are willing and able to pay for a public good. The Free Rider problem leads to under-provision of a good and thus causes market failure; the good is not provided at all by the private sector because they would be unable to supply it for a profit.