Friday, 15 April 2011

Public Goods (Microeconomics)

A public good is a good that, as the name suggests, is consumed by the public as a whole therefore it is almost impossible to charge people for using them. Because of this, they have to be provided by the government using tax revenue rather than being privately supplied. If left to the free-market, most public goods would not be supplied, despite the benefits they give to people who consume them. An example of a public good would be street lights.

For a good to be classed as a public good it must fit into two categories, these being:

  • Non excludable - This means that individuals cannot be excluded from consuming the good. Using the street lights example, it's virtually impossible to stop people consuming them once they have been provided, thus they can be classed as non-excludable.
  • Non rival - This means that consumption by one individual does not affect the consumption of others. With street lights, if one person is using the light it isnt stopping others using it as well, thus they are non rival as well. 

If a good has both of these characteristics then it can be seen as a pure public good. If a good fits into one category, but not the other then it is said to be a quasi-public good. So, if a good is non excludable, but not non rival it would be a quasi public good. An example could be a beach. There's no way of stopping someone coming and sitting on the beach, therefore it is non excludable. However, if hundreds of people swarm to the beach and leave litter the consumption of that good is affecting other peoples consumption, so the good is rival. A beach posses's only one of the characteristics, thus is a quasi-public good.

Tied in with public goods are free riders. This is the term given to people who directly benefit from the consumption of a public good, yet do no contribute to its provision. So, these are normally holiday-makers from abroad who don't pay taxes in the UK, and thus aren't paying for street lights, beaches etc.

Public goods is a very subjective theory, some people may see a good as both non excludable and non rival whereas another person may see it as only non excludable, so use it cautiously. 

Thanks for reading!

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