public goods

public goods - Yuh Huei Jang 802 935 645 18.e Public Goods...

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Yuh Huei Jang 802 935 645 18.e. Public Goods Generally, public goods are considered goods that benefit all consumers, such as a city park. However, in the view of economists, public goods need not be provided by the government. A public good need only meet two criteria: that it is nonrival consumption , and that there is nonexclusion . Nonrival Consumption Given a certain level of production, a good can be considered nonrival in consumption if one’s consumption of that good does not affect the quantity consumed by other individuals. All individuals that receive this good benefit from it simultaneously. An example that can be used is that of a crime watch program. One resident of a community is able to benefit from a lower level of crime, as other also do simultaneously. Conversely, a good that is rival in consumption diminishes another’s use of that good if an individual benefits from it. Simultaneous consumption of a good is not possible if a good is rival in consumption. There include the typical goods that may come to mind, such as televisions, clothing, and food. Nonexclusion A condition that is characterizes nonexclusion can be thought of one in which a good’s benefits may be not confined (or be prohibitively costly to do so) once produced. National defense is one example of a good that cannot be excluded. All residents of a country are protected by the service of defense that is produced—regardless of whether they are a citizen or not. An example of a exclusive good might be public access content that requires a certain user identification and password for designated areas. The general information is very accessible to all, but access to more sensitive content may be limited to law enforcement agencies with the proper authentication. The Free-Rider Problem With these two conditions—nonrival consumption and nonexclusion (thus making a public good)—in play, we can begin to set the foundations for our next topic. A nonrival nonexclusive good shakes up the market system. No private firm would have incentive to pursue production of such a good because it would be possible for those who do not pay for it to benefit from it. This private market may not produce a good even if the benefits to those that would receive it are worth more than the cost of production. Let’s take for example a public road that needs to be built to replace a dirt path leading to a new community. The project may have a total cost of $50,000, but the 100 residents are each willing to pay $1000 for the good. The total benefit of the road to all 100 residents is valued at $100,000—sufficiently more than the cost it would incur. Why, then, would a private firm not want to construct the road? Each resident understands that he would be able to still enjoy the road, as long as it was built, regardless of how much he contributed to its production costs. Each resident, therefore, tries to
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public goods - Yuh Huei Jang 802 935 645 18.e Public Goods...

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