1.3.
3 – Public Goods
What are Public Goods?
• Goods that are:
• Non excludable = Impossible to prevent others from accessing good without
charge.
• Non rivalrous = If one person consumes goods, it leaves no less of good for
next person.
What are Public Goods?
• Goods that are:
• Non excludable = Impossible to prevent others from accessing good without
charge.
• Non rivalrous = If one person consumes goods, it leaves no less of good for
next person.
• Therefore, in a free market, no rational person would be willing to pay
for a public good, because they hope someone else will pay for it,
allowing them to access it for free.
• This is the free rider problem.
What is the market failure and solution?
• If nobody is prepared to pay for it, there is no demand, so no business
is prepared to produce it.
• This means good fails to be produced in a free market, even though
people want the good.
What is the market failure and solution?
• If nobody is prepared to pay for it, there is no demand, so no business
is prepared to produce it.
• This means good fails to be produced in a free market, even though
people want the good.
• SOLUTION:
• Government provides the public goods, funded by taxation.
Pure public goods
Pure public goods
• e.g. Streetlights
• Cannot stop someone from using streetlight.
• If someone uses a streetlight, someone else can use it after.
Quasi Public Goods
• Goods that are not perfectly non rivalrous and non excludable.
Quasi Public Goods
• Goods that are not perfectly non rivalrous and non excludable.
• e.g. Roads
• Semi excludable = Tolls, meaning people would have to pay to drive on certain
roads.
• Semi rivalrous = People do not use up roads, and so does not leave less for
others, but congestion causes problems.
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6] NB: Extract gives
example of public goods (national defence) and private goods (private
security).
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6] NB: Extract gives
example of public goods (national defence) and private goods (private
security).
• Knowledge?
• Define terms.
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6] NB: Extract gives
example of public goods (national defence) and private goods (private
security).
• Knowledge?
• Define terms.
• Application?
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6] NB: Extract gives
example of public goods (national defence) and private goods (private
security).
• Knowledge?
• Define terms.
• Application?
• Analysis?
• Why can profit be made from private security and not national defence?
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6]
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6]
• Define public goods and how they differ from private goods.
• They differ in excludability + rivalry.
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6]
• Define public goods and how they differ from private goods.
• They differ in excludability + rivalry.
• Able to make profit from private goods, but not public goods, due to
free-rider problem.
• No one willing to pay for public goods, so no profit.
Example Question
Explain the difference between private goods and public goods, and
why it is possible for a business to make a profit in the supply of private
goods but not in the supply of a public good. [6]
• Define public goods and how they differ from private goods.
• They differ in excludability + rivalry.
• Able to make profit from private goods, but not public goods, due to
free-rider problem.
• No one willing to pay for public goods, so no profit.
• However with private goods, people need to pay to access goods,
meaning profit can be made.
