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? 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.