Public Goods

The government spends billions of pounds each year on public goods. To understand the 0)__B__ of these goods more clearly, and why the government is left to 1)_____ these for people throughout the economy, we must consider the characteristics of private goods.

A private good has three main 2)_____:

Excludability: Consumers can be excluded from consuming the product if they are not willing to pay for it (for example – a ticket to the theatre or a meal in a restaurant)

Rivalry: One person's consumption of a product reduces the amount available for other people to consume – because 3)_____ economic resources are used up in producing and supplying the good or service

Rejectability: Private goods and services are rejectable – if you don't like the look of the soup on the college menu, you can reject the 4)_____ to consume it and use your money to buy something else.

The characteristics of pure public goods are the opposite of private goods. They are services which are clearly in demand, but which must be provided 5)_____ by the Government for two main reasons:

Non-excludability – goods cannot be 6)_____ those who have paid for it. In this sense, non-payers can take a free ride and enjoy the benefits of consumption

Non-rivalry in consumption – consumption by one person does not reduce the 7)_____ of a good to others.

Examples of public goods include flood control systems, street lighting and national defence. Public goods (in fact most of them are services!) are not normally provided by the private sector in an economy. Partly this is because of the free-ride problem.

The "free rider" principle says that you cannot charge an individual a price for the 8)_____ of a non-excludable good because somebody else would gain the benefit from consumption without paying anything.

Consider the case of the provision of traffic wardens and safety 9)_____ on roads. One person's benefit from these services is not unique – other motorists benefit from the service as well – but they cannot be stopped and asked to pay for the benefits they derive.

Why is there market failure with public goods? The main reason is that private sector producers will not supply public goods to people because they cannot be sure of making an economic 10)_____. This is due to the characteristics of public goods outlined earlier. Consumers can take a free ride without having to pay for the good or service.

The obvious solution is that these goods are provided collectively by the government, and then financed through taxation of individual households and businesses.

0 A similarity B nature C value D sense

1. A supply B give C provide D secure

2. A distinctions B types C characteristics D uses

3. A abundant B scarce C poor D scant

4. A chance B will C destiny D luck

5. A privately B collectively C individually D personally

6. A limited by B confined to C included in D excluded to

7. A presence B use C convenience D availability

8. A provision B buy C supply D purchase

9. A notices B signs C symbols D signals

10. A benefit B good C income D profit

Exercise 8. Complete the text using the words from the box in the correct form.

border global concern aviation control

priority regional generation community travel