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Public and Private Goods Eonomics 1

In: Business and Management

Submitted By reindeer2014
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Public Goods and Private Goods

* Public goods provide an example of market failure resulting from missing markets. * To understand this, it is helpful first to discuss what is meant by a private good or service.

Private Goods
Private and Public Goods – a question of exclusion

Le Shuttle is a private good – the service is excludable, rival in consumption and rejectable. But not all providers of public goods make a profit.

A private good or service has three main characteristics: 1. Excludable: A ticket to the theatre or a meal in a restaurant or pay-per-view sporting events are private goods because buyers can be excluded from enjoying the product if they are not willing and able to pay for it. Excludability gives the seller the chance to make a profit. When goods are excludable, the owners can exercise property rights. 2. Rival in consumption: If you order and enjoy a pizza from Dominos, that pizza is no longer available to someone else. Likewise driving your car on a road uses up road space that is no longer available at that time to another motorist. With a private good, one person's consumption of a product reduces the amount left for others to consume and benefit from - because scarce resources are used up in supplying the good or service. 3. Rejectable: If you don't like the soup on the school menu, you can use your money to buy something else! You can choose not to travel on Virgin Rail and go instead by coach, or you can choose not to buy a season ticket for your local soccer club and instead use the money to finance a subscription to a health club. All private goods and services can be rejected by the consumer if their needs and preferences or their budget changes.

Characteristics of Public Goods

The characteristics of pure public goods are the opposite of private goods: 1. Non-excludability: The benefits derived…...

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