Quiz 2: Crime and Drugs

Business

The goods and services which have unique characteristic of non-excludability (consumption by one cannot reduce the quantity of consumption by others) and non-rivalry (consumption by one cannot withheld the consumption by others), and which cannot be provided by the private market efficiently is called the public goods and services. Some examples of public goods and services are roads, sidewalks, bridges, parks, museums, libraries, water supply, basic education, health services, basic television and radio broadcasts, etc.

The "non-excludability" property of public goods gives rise to the problem called free rider problem. The free rider problem occurs when a person enjoys the benefit of certain products without contributing to its cost. The free-rider problem is the basic reason why government provides the public goods. The classic example of free rider problem is the national defense. The free rider problem occurs when a person enjoys the benefit of certain products without contributing to its cost. The free-rider problem is the basic reason why government provides the public goods. The classic example of free rider problem is the national defense. The people of a country including the tax evaders enjoy the benefit of being defended. The people and general tax payers pay taxes and the government is spending the tax revenue on national defense. But the benefit of this is enjoyed by the people who evade taxes. It is not always possible to exclude these people from the benefit of such services. Other examples of free riders are, collective bargaining in which the representatives bargain for some issue and all the workers gain from it including those who does not pay the union fees.

The goods and services which have unique characteristic of non-excludability (consumption by one cannot reduce the quantity of consumption by others) and non-rivalry (consumption by one cannot withheld the consumption by others), and which cannot be provided by the private market efficiently is called the public goods and services. If we say that the public good is indivisible we mean that these goods cannot be used solely by one consumer and the benefit we get from them cannot be divided between its user. Everybody will get same benefit and can consume same amount of the good. If we say that the public good is nonrivalrous, we mean that the consumption of the public good by one cannot withheld the consumption by others. If we say that the public good is non-excludable, we mean that consumption by one cannot reduce the quantity of consumption by others.