2. Contents
In these slides you will learn about,
• Public Goods,
• Impure Public Goods
• Publicly Provided Private Goods
• Rationing Devices for Publicly Provided Private Goods
• Efficiency Condition for Public Goods
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3. Public Goods
• Goods which are having two characteristics:
(i) Non Rivalry in Consumption (ii) Non Excludability
• With non-rival consumption, it is not desirable to exclude
anyone from the benefits. With private provision, there will
be under consumption and/ or undersupply.
• With non-excludability, it is not feasible to exclude anyone
from the benefits of the good. There will be a free rider
problem. Such goods typically cannot be provided by the
market, and when they are privately provided, they will be
undersupplied.
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4. Examples of Public goods are; Defense, Lighthouse,
street Lamp, clean air etc.
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5. Impure Public Goods
• Those goods/services which have any one of the two
characteristics of public goods.
• Examples: Congestion on roads, Tolls Tax etc.
Private Goods
• The goods which don’t have these two characteristics.
These goods are produced and provided through free
market mechanism.
• Examples: Coca Cola, Pizza, Public Housing etc.
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8. Publicly Provided Private Goods
• Publicly provided goods for which there is a large
marginal cost associated with supplying additional
individuals are referred to as publicly provided
private goods.
• E.g. Education.
• Sometimes when the government provides a
private good publicly (like water), it simply allows
individuals to consume as much as they want
without charge.
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9. • For these goods, there is a marginal cost associated
with each unit consumed. It costs money to purify
water and to deliver it from the source to the
individual’s home. If a private good is provided
freely, there is likely to be overconsumption of the
good.
• Because individuals do not have to pay for the good,
they will demand it until the point at which the
marginal benefit they receive from the good is zero, in
spite of the fact that there is a positive marginal cost
associated with providing it.
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14. Rationing Devices for Publicly Provided Private
Goods
Given the inefficiencies arising from overconsumption when no
charges are imposed for publicly provided private goods,
governments often try to find some way of limiting
consumption. Any method restricting consumption of a good is
called a rationing system. Prices provide one rationing system.
• User Fee
• Uniform Provision
• Queuing
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18. (ii) Uniform Provision
• A second commonly employed way of rationing publicly
provided goods is uniform provision: supplying the same
quantity of the good to everyone.
• Thus, we typically provide a uniform level of free
education to all individuals, even though some
individuals would like to have more and some less. (Those
who would like to purchase more may be able to purchase supplemental educational
services like tutoring on the private market.)
• This, then, is the major disadvantage of the public
provision of goods; it does not allow for adaptation to
differences in individuals’ needs and desires as does the
private market. 18
20. • The government chooses to supply each individual
with a quantity that is somewhere in between, Q*.
• At this level of consumption, the high demander is
consuming less than he or she would like; the high
demander’s marginal willingness to pay exceeds
the marginal cost of production.
• On the other hand, the low demander is consuming
more than the efficient level; his or her marginal
willingness to pay is less than the marginal cost.
(Because the low demander does not have to pay anything for it,
and still values the good positively, he or she, of course,
consumes up to Q*.) 20
21. (iii) Queuing
A third method of rationing that is commonly
employed by the government is queuing: rather than
charging individuals money for access to the publicly
provided goods or services, the government requires
that they pay a cost in waiting time.
• This allows some adaptability of the level of supply
to the needs of the individual.
•
• Those whose demand for medical services is stronger
are more willing to wait in the doctor’s office. It is
claimed that money is an undesirable basis upon
which to ration medical services. 21
