Search topics

Saturday, January 29, 2011

Public Goods

Public goods are goods that would not be provided in a free market system, because firms would not be able to adequately charge for
them. This situation arises because public goods have two particular characteristics. They are:

  1. Non-excludable - once the goods are provided, it is not possible to exclude people from using them even if they haven't paid. This allows 'free-riders' to consume the good without paying.
  2. Non-rival - this means that consumption of the goods by one person does not diminish the amount available for the next person.

We can see this if we look at the case of street lights. If a street light is provided by a firm, then it cannot exclude people from benefiting from it. It is not possible to charge people who walk under it. When people walk under it, it is also true that they don't make it go dimmer - they don't diminish the amount available for the next person. Street lights are therefore non-excludable and non-rival - they are public goods.

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...