Excludability: Ability to prevent access to a good; if possible, the good is excludable.
Rivalry: Consumption by one individual reduces availability for others.
Public Goods: Goods that are both non-excludable and non-rival, e.g., national defense.
Private Goods: Excludable and rival, e.g., clothing or food.
Common Resources: Rival but non-excludable, e.g., fish stocks or public pastures.
Club Goods: Excludable but non-rival, e.g., cable TV or private parks.
Free Rider: Individual who benefits from a good without paying for it, risking under-provision.
Merit Goods: Goods that are under-consumed without government intervention, e.g., education.
De-merit Goods: Goods over-consumed despite social harm, e.g., cigarettes.
Tragedy of the Commons: Overuse of common resources due to lack of regulation, leading to depletion.
1. According to economic principles, optimal provision of a public good occurs when:
2. According to the revision sheet, which characteristic best defines a public good?
3. Why are common resources prone to overuse, leading to the 'Tragedy of the Commons'?
What are the defining characteristics of public goods?
Public goods are neither excludable nor rival in consumption, meaning they cannot prevent non-payers from benefiting and one person's use does not reduce availability to others.
Public goods — definition?
Non-excludable and non-rival.
How does market failure justify government intervention in the provision of goods?
Market failure occurs when markets do not allocate resources efficiently, often due to public goods, externalities, or information asymmetry, justifying government intervention to improve societal welfare.
Common resources — difference?
Rival but non-excludable.
What is the principle used to determine the optimal level of public good provision?
The optimal level of public good provision occurs where the Marginal Social Benefit (MSB) equals the Marginal Cost (MC), ensuring societal gains are maximized without excessive expenditure.
Merit goods — under or over-consumed?
Under-consumed without intervention.
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