Transcript Public Goods & Services - squiresbchs / FrontPage

Public Goods & Services
Who Produces Goods/Services
• Most goods/services are produced by the
private sector (private businesses)
• Some goods/services are provided by public
sector (aka government).
What are public goods?
• Demonstration
• Why is government involved in producing
them?
• How are they paid for?
What are private goods/services?
• Goods or services that can be purchased and
consumed by one individual at a time.
• Individuals who do not pay for a private good
can be excluded from using it.
• Examples of private goods:
– Hamburgers
– Pizzas
– Cars
– Movie tickets, etc.
What are public goods/services?
• Once they are available, they can be enjoyed
or used by numerous individuals at the same
time without reducing the amount of the
good available for others to use (shared
consumption).
• Public goods cannot be withheld from those
who don’t pay for them (nonexclusion
principle)
With public goods,
• Individuals will often not volunteer to pay as
much for a product as they really value it
because they can “free-ride”
• Free Ride is use the goods/services even if
other individuals pay for them.
What are examples of public goods?
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Roads
Dams
National defense
Public education
The court system
Lighthouses
Weather forecasts
Street lights
Police and fire protection
National forest
Wilderness areas
• Not all government produced goods/services are
pure public goods and services.
• Why?
– Because crowing/congestion often mean that some
people’s use of the products will keep others from
using them, and in some cases, it is possible to keep
those who do not pay for products provided by
government from consuming them (public parks)
• Only products with 2 characters of shared
consumption & non-exclusion are considered
pure public goods and services.
• What happened to your incentive to pay for
the quiz information when it was available to
you whether you paid for it or not?
• What happens to consumers’ incentive to pay
for public goods and services, such as dams,
national defense, roads and police protection,
when they obtain thee goods and services
whether they pay for them or not?
• If consumers are unwilling to pay for these
goods and services, who is going to pay for
them?
– Government must arrange for the production of
goods/services that involve shared consumption.
– Government also provides these goods/services
when it is difficult to exclude those who are
unwilling to pay for a product from using it.
What is a market failure?
• A market failure occurs when no one will
produce a good or provide a service that
people cannot be excluded from or if it
involves shared consumption.
• The role of government is to provide the
needed goods/services in the market
economy making it a mixed economy.
How does government provide the
good or services the market failed to
produce?
• Through taxes.