Unit 2.9 - Market Failure: Public Goods

All 18 cards in this deck

Every term and definition, free to read. Hit study above to practice them as flashcards.

Products enjoyed in common where one person's use doesn't reduce availability for others.

Collective consumption good

social optimum

The output level where marginal social benefit equals marginal social cost, so society's welfare is at its greatest. Public goods sit far below it — often unsupplied entirely — because free riders make it impossible to charge users directly.

An approach to government intervention that involves paying a specialized firm to provide a public good.

contracting out

State the formula: If MSB

If MSB > MSC => under-allocation When marginal social benefit exceeds marginal social cost, society would benefit from more provision of the public good.

State the formula: If MSC

If MSC > MSB => over-allocation When marginal social cost exceeds marginal social benefit, society is providing too much of the public good relative to its benefits.

State the formula: MSB (MSB)

MSB = MSC The efficient (optimal) quantity of a public good occurs where marginal social benefit equals marginal social cost.

under-provision

A situation where public goods are not produced in sufficient quantities due to the free rider problem. Government intervention is often necessary to ensure adequate provision and improve social welfare.

A feature of certain goods where one person's use does not diminish availability for others.

non-rivalrous

A good or service characterized by both non-rivalrous and non-excludable traits.

pure public good

An item whose availability is restricted to those who pay for it, and that diminishes in quantity as it is consumed.

private good

Goods and services that exhibit one of the two key characteristics of certain shared resources.

impure or quasi-public goods

The characteristic of a good that prevents firms from denying benefits of consumption to individuals who do not pay for it.

non-excludable

Excludability

The ability to prevent individuals from accessing a good or service if they do not pay for it. This characteristic distinguishes private goods from public goods, which are typically non-excludable.

Positive externalities of consumption

Benefits that spill over to third parties when a good or service is consumed. For example, public goods like street lighting enhance safety and visibility for all, not just those who pay for them.

Quasi-public good

A good or service that has one characteristic of public goods, either non-rivalrous or non-excludable, but not both. Examples include public roads, which can be congested, and public parks, which have a finite capacity for users.

Rivalry

A characteristic of goods where one person's consumption reduces the availability for others. Public roads exhibit some rivalry when congested, affecting all users.

emergency services

A type of public good that includes services like ambulance, fire, and police, which cannot exclude non-payers from benefiting. This characteristic means that their consumption does not diminish availability for others, contrasting with private goods that depend on individual payment.

national defence

A public good that provides national security and cannot exclude individuals from its benefits. Like other public goods, its consumption by one person does not reduce its availability for others, highlighting the difference from private goods that require payment.