public goods

• Public goods


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


  • Street lights
  • Flood control systems
• Public good components

  • 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 therefore businesses aren't willing to supply
• 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 good example

  • 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