In the market economy Consumer must be bid for what they wish to buy and must thus reveal their preferences to produce. Producer, in trying to maximize their profits, will produce what consumer want to by and will do so at least cost. In reality, various difficulties arise. imperfect competition, production may be decreasing cost, Consumer may lack of information.

1. 4TH
CHAPTER
PUBLIC PROVISION
FOR SOCIAL GOODS

2. A. Social Goods & Market Failure:
B. Provision for Social Goods:
C. Mixed Goods:
D. Giving as a Social Goods:
E. Merit Goods:

3. In the market economy Consumer must be bid for
what they wish to buy and must thus reveal their
preferences to produce. Producer, in trying to
maximize their profits, will produce what consumer
want to by and will do so at least cost.
In reality, various difficulties arise. imperfect
competition, production may be decreasing cost,
Consumer may lack of information.

4.  First : “Externalities” where consumption benefits
are shared & cannot be limited to particular
consumer, or where economic activity results in
social cost which are not paid for by the producer
or the consumer who paid cause them.
 Second: market can respond only to the effective
demands of consumer as determined by the
prevailing state of “Income Distribution”,
 Third: Unemployment, Inflation and Economic
Growth.

5. The market can function only in a situation where
the “exclusion principle” applies is excluded.
Exchange cannot occur without property rights and
property rights require exclusion.
This process can function in a market for private
goods- for Food, Clothing, Housing,

6. Exclusion is inappropriate in the case of social
goods because their consumption is Nonrival.
Nonrival Consumption: consumption of the good
by one person does not preclude consumption by
a second person.
 Example, Benefits provided by national defense
or by measures to prevent air pollution. Exclusion
would be impossible and moreover inefficient.

7. No excludable: Consumption of public goods is No
excludable. This means that everybody can
consume the product whether they paid for it or
not.
Example:- The locale public Broadcasting System
radio station claims that only one of 13 listeners
actually pays(i.e,contributes to) the station.
Likewise, most college student don’t pay taxes in
their local community but still use the “Services” of
the local constabulary.

8. Although the features of Nonrival consumption &
Nonexcludabllity need not go together, they
frequently do. In these instances for example, Air
purification, National defense, Street lights,---
exclusion both cannot and should not be applied.
Both causes of market failure overlap, it may be futile
to ask which is the basic cause. However, the Nonrival
nature of consumption might be considered as such,
Since it renders exclusion undesirable (inefficient)
even if technically feasible.

9. Feasible Not
Feasible
Rival 1 2
Nonrival 3 4

10. Two main issues arise due to non-rival nature of
social good consumption:
What constitutes efficient resources allocation
The procedure by which their provision is to be
achieved
First issue is explained through “comparison
with private goods” and second one via
“budgetary provision”

11. In order to clarify the problem 1, we refer to the
demand and supply mechanism for private goods.
On same basis, we derive the allocation mechanism for
social goods as well.
Now compare and contrast of these two situations
enables us to distinct the social goods with private one.
After graphical explanation, we conclude that for
private goods, efficiency requires equality of Marginal
benefits of each individual with MC while in case of
social goods, the sum of MB should equal MC.

14.  Provision of social goods through market
mechanism is misleading as difference in
efficiency conditions arises due to following
factors;
1. Consumption is non-rival
2. Exclusion is not feasible
 Thus consumer does not reveal his preference
through bidding.
 Due to large number of participants, everyone
try to act as free rider

15. Alternative process of provision of social goods is
political one through:
Obtaining the revelation of preference from general
public
To furnish it with the fiscal resources needed to pay
for them
The preference can be accomplished in efficient
manner via political process of voting on tax and
expenditure decision.
Another allocative method is representative
democracy

16. Between the extremes of purely private and purely
social goods are noted in mixed situation.

17. Such mixed cases include private goods
which generate benefit or cost externalities

18. Suppose by getting educated A is not only derives
personal benefits but also makes it possible for
other to enjoy with more educated community.
As being large number of other consumer may be
affected so budgetary process will again be needed
to serve preferences.

19. •The correct budgetary intervene will not
involve full budgetary provision in this
case. so it will take the form of subsidy
to private purchases.

21.  Private consumption or production activities
may generate costs which are not paid for by
consumer and producer.

23. Preferences revelation is difficult because absence
of exclusion.
Individual contribution seems to be a small
fraction of tax accumulated funds.

24. External benefit may come in situation in which
only small number conditions are involved,
although provision of social goods occurs most
important in a large number setting.

26. Suppose an airplane flying at night over a city, or a
chimney causing air pollution both situation external
cost may impose on many people. yet it is
impracticable for each of them to negotiate with the
offender.

27. Under certain circumstances the
market is ready for generating an
efficient provision of social goods
without involving a budgetary
process

28. Another case of mixed goods arise where
goods are not Nonrival in consumption
even through they are consumed in equal
amount by all member of particular
group.

29. The spatial benefits area is limited for most social
goods and the members of the group are thus
confined to the residents of that area.
A group which is sufficiently large to require
provision for social goods by political process need
not be all inclusive
Simultaneously the feature of spatial limitation of
benefits is central to the application of social goods
theory to local government

30. Satisfaction of some wants either through the
purchase of private goods or provision of social
goods
Where particular needs may be met by alternative
modes of public or private provision

31. It is of interest in relation to transfer.
Suppose that 1 person or Govt. giving to 2 person. it
is based on 1st person’s desire to see 2nd person
position to improved.1st person until desired equal
satisfaction from similar giving by C and D

32. Giving in this may generates externalities not only
for the receiver but also for other who see his
position improved.
In the Govt. provision t is giving taxing and transfer
payment of taking by hose who benefits.

33. The premise that private and social wants are
experienced by individuals rather then group entities
is quite accord with the notion that individuals do
not live in isolation but in association with other.
(wants was based on Nonrival nature of consumption
and not being applicable of exclusion)

34. The social goods may be noble as carry high
culture or aesthetic values such as everyday
needs (roads and fire protection)
The private goods may be noble as satisfy
cultural needs such as everyday needs
(bubblegum)

35. The social goods may be noble as carry high culture
or aesthetic values such as everyday needs (roads
and fire protection)
The private goods may be noble as satisfy cultural
needs such as everyday needs (bubblegum)

36. The concept of wants based on the needs and
preferences of individuals to held values of western
culture.
The concept of communal based on the needs is hard
to interpret.

37. The community interest give rise to communal
wants, wants which are generated by and pertain to
the welfare of the group as a whole
. There is community interest, an interest which is
attributable to the community as a whole and which
does not involve a “mere’’ addition of individual
interest.

38. COMMON WANTS:
A group of people share an historical experience or
cultural tradition with which identify, thereby
establishing a common bond.
 Individuals will not only defend their home but
will join others in defending their territory or in
protecting their country, such common values and
interest may give rise to common wants.

39. Whereas the theory of both social
and private goods is based on the
premise of consumer sovereignty,
the role of community preference
and of merit goods is noted