ECON 2.10

• Public goods


  Non-excludable and non-rival, underprovided in a free market because of the free-rider problem
• Public goods


  • Street lights
  • Flood control systems
• Public goods


  • Non-excludable - consuming the good does not prevent others from consuming it
  • Non-rival - the benefit others get from the good does not diminish if more people consume it
• Free-rider problem


  People who do not pay for the good still receive benefits from it, in the same way people who pay for the good do
• Free-rider problem


  Causes public goods to be underprovided by the private sector - they do not make a profit from providing the good since consumers do not see a reason to pay for the good
• Marginal social benefit exceeds marginal private benefit


  Causes welfare loss (and therefore market failure) through under provision
• Private goods


  Rival and excludable
• Private goods


  • Chocolate bar
• Quasi public goods


  Have characteristics of both public and private goods i.e partial excludability, rejectability and non rivalry
• Quasi public goods


  • Roads
  • Paths
• Public goods are underprovided because it is difficult to measure the value consumers get from public goods, so it is hard to put a price on the good</b>
• Governments provide public goods, and they have to estimate what the social benefit of the public good is when deciding what output of the good to provide
• The quantity of public goods provided will be less than the socially optimum quantity