Economics: Principles, Problems, and Policies, 19th Edition

Published by McGraw-Hill Education
ISBN 10: 0073511447
ISBN 13: 978-0-07351-144-3

Chapter 5 - Market Failures: Public Goods and Externalities - Questions: 4

Answer

Public goods are non-rivalrous and non-excludable. US border patrol is a public good, as it is non-rivalrous, as one US citizen's consumption of it does not diminish the next person's ability to use it. It is also non-excludable, as it is almost impossible to exclude one person's ability to consume it. (view persons that can be excluded and "consumers" of the good as people average US citizens who are not involved in the border control) Satellite TV is a private good, as it is excludable, as a TV provider has the ability to not provide TV to certain people, who do not opt to pay for TV. It might also be rivalrous in consumption, as the TV provider might have a limit to the maximum number of people that they are able to provide for. Thus, one person's consumption of the good might diminish the next person's ability to.

Work Step by Step

Being non-rivalrous implies that one person's consumption of the good would not diminish the next person's ability to use it. This would cause the ideal price for which public goods are provided to be 0, as the marginal social cost of producing each additional unit of good is 0. Producers would thus not provide these goods in the free market, as scarcity does not provide them an incentive to divert resources to producing such goods as no revenue is earned when providing a good for free. Non-excludability would mean that it is not possible or extremely costly to exclude an individual from consuming a good. This would result in the free rider problem, as consumers know that it is possible for them to consume the good for free, and thus they would not express the benefit that consuming an additional unit of good would bring them (thus not reflect marginal benefit). This would translate to there not being a demand curve reflected, as MB=Demand. Thus, such goods would not be provided in the free market, as there lacks a demand curve to indicate consumer preference
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