Question for discussion
• Discuss the advantages and disadvantages to raise government
bonds to boost the economy
Question for Discussion
• How would new technologies like Robotaxi, humanoids affect
our economy?
Non-Provision of Public
Goods
Unit 16
What are public
goods?
What are private
goods?
PRIVATE GOODS VERSUS PURE PUBLIC GOODS
• Excludable: Private goods are highly excludable. Sellers can easily prevent
individuals who have not paid for the good from consuming it. Excludability
allows for the enforcement of property rights and collection of payment.
• Rival in consumption: When one person consumes or uses a private good,
it reduces the quantity available for others to consume. In other words,
there is competition or rivalry among consumers for the same resource.
• Pricing and Profit: Private goods are typically priced in markets based on
supply and demand, and consumers pay for what they consume. Private
firms are the primary providers of these goods.
EXAMPLES OF PRIVATE GOODS
Private gyms Exclusive clubs Tickets to an event
Meals in a restaurant
WHAT ARE PUBLIC GOODS?
• Non-rivalry: Public goods are non-rival (consumption by one
person does not reduce the supply available for others) and
non-excludable, usually provided collectively by the state.
• Non-excludability: Public goods are non-excludable meaning that
the benefits derived from them cannot be confined solely to those
who have paid for it. Non-payers can enjoy the benefits of
consumption at no financial cost to themselves.
• This leads to the free-rider problem
EXAMPLES OF PURE PUBLIC GOODS
Sanitation Flood defence Crime control for Reduced risk of
infrastructure projects a community disease from
vaccinations
Freely available Public service Irrigation National parks /
knowledge from broadcasting systems natural
online learning services benefitting a environment
whole community
EXAM GOLD
Every time students see the phrase ‘public goods’ in an exam, the
first two things they should write down are that public goods are
both non-rival and non-excludable.
A nice evaluative point is that public goods can sometimes be
quasi-public and be either non-rival or non-excludable, but not
both. i.e. public road
WHY ARE PUBLIC GOODS FINANCED BY GOVERNMENT?
• Non-excludability: Taxation ensures that everyone contributes to the
funding of public goods, preventing free-riding and ensuring that the costs
are distributed across the entire population.
• Economies of scale: Producing public goods for a larger population can lead
to lower per capita costs. Taxation allows governments to collect funds
from a broad tax base, which can be more cost-effective in providing these
goods compared to private firms or individual transactions.
• Public Interest and Equity: Taxation allows governments to allocate
resources based on societal priorities and ensure that public goods are
provided in a way that promotes social welfare and equity.
CASE FOR HIGHER STATE SPENDING ON PUBLIC GOODS
• Economies of scale: It is more efficient to provide public goods at state level
leading to a lower long run cost per user
• Access and affordability: The absence of profit motive makes public goods
affordable – this is important for equity
• Investment: Public goods can lead to higher private sector investment such
as the regeneration of economically-deprived areas attracting
entrepreneurs
In each market given below, decide if the product is
rival/non-rival and
excludable/non-excludable.
Excludable or
Rival or non-rival
non-excludable
A large area of open public beach
A monthly subscription to BT Sports Channel
Free Economics lecture streamed on You
Tube
Access to a road bridge through a tolling
system
Natural drainage systems installed in the
hills to lower the risk of town/city flooding
Pitches at a park open to the public
In each market given below, decide if the product is
rival/non-rival and
excludable/non-excludable.
Excludable or
Rival or non-rival
non-excludable
Non
A large expanse of open public beach Non-excludable
rival (off-peak)
A monthly subscription to BT Sports Channel Non-rival Excludable via encryption
Free Economics lecture streamed on You
Non-rival Non-excludable
Tube
Access to a road bridge through a tolling
Non-rival Excludable
system
Natural drainage systems installed in the
Non-rival Non-excludable
hills to lower the risk of town/city flooding
Pitches at a park open to the public Rival Non-excludable
WHAT ARE QUASI PUBLIC GOODS?
• A quasi-public good is a near-public good. It has some of the
characteristics of a public good. Quasi public goods are:
• 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
• Semi-non-excludable: It is possible but difficult or costly to exclude
non-paying consumers such as fencing a park or beach and
charging an entrance fee; or toll booths
EXAMPLES OF QUASI PUBLIC GOODS
Crowded Toll roads Busy urban
Free Wi-Fi
beaches and bridges parks
Quasi-public goods, also known as "near-public goods" or "mixed goods," are a
category of goods that exhibit characteristics of both private goods and public goods.
They do not fit neatly into either of these two traditional categories because they
display some degree of excludability and rivalry in consumption, but to a lesser extent
than typical private goods.
WHAT IS THE FREE-RIDER PROBLEM?
• Because public goods are non-excludable it is difficult to charge people for
benefitting once a product is available.
• 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.
• Pure public goods are not normally provided by the private sector because
they would be unable to supply them for a profit.
• Pure public goods lead to missing markets. This is a complete form of
market failure.
EXAMPLES OF THE FREE-RIDER PROBLEM
Accessing Open
Fare Dodging Fly Tipping
Spaces
Open access to free
Wi-Fi
Tax evasion Downloading / sharing
OVERCOMING THE FREE-RIDER PROBLEM?
• Compulsory taxation to fund collective provision of services such as
national defence systems
• Appealing to people’s altruism and sense of social purpose
• Community solutions for example establishing social norms to
manage common pool resources such as fishing grounds and
grazing land
• Government legislation – regulations enforceable in law such as
fishing quotas, copyright and patent laws to protect intellectual
property
ON BALANCE
Give one argument for and one argument against state
provision of a public good
FOR AGAINST
Give one argument for and one argument against state
provision of a public good
Government provision may more efficient
because of economies of scale
State provision may help to prevent
under-provision and under-consumption
so that social welfare is improved
FOR AGAINST
Give one argument for and one argument against state
provision of a public good
Government provision may more efficient
because of economies of scale
State provision may help to prevent
under-provision and under-consumption
so that social welfare is improved
FOR AGAINST
Give one argument for and one argument against state
provision of a public good Public/private provision brings in profit
maximising aspect that may not maximise
public welfare e.g. junk food served in
schools
If the government becomes a monopoly
Government provision may more efficient provider, there is a danger of a lack of
because of economies of scale efficiency arising from a lack of
competition
State provision may help to prevent
under-provision and under-consumption
so that social welfare is improved
FOR AGAINST
Give one argument for and one argument against state
provision of a public good
Public/private provision brings in profit
Government provision may more efficient maximising aspect that may not maximise
because of economies of scale public welfare e.g. junk food served in
schools
If the government becomes a monopoly
State provision may help to prevent
provider, there is a danger of a lack of
under-provision and under-consumption
efficiency arising from a lack of
so that social welfare is improved
competition
FOR AGAINST
