MARKET FAILURE AND
PUBLIC GOODS
Sit Dolor Amet

Characteristics of Public Goods
◦ 1. Non Rivalrous : It’s consumption by one person does not reduce consumption by someone else.
◦ 2. Non Excludable : it is not possible to exclude someone from using the good.
◦ Example of Public good
◦ Free rider problem, occurring when people can enjoy the use of a good without paying for it. The free rider problem arises from
non-excludability: people cannot be excluded from using the good. Public goods are a type of market failure because due to the
free rider problem, private fi rms do not produce these goods: the market fails to allocate resources to their production.
◦ Quasi-public goods (public goods that are not ‘pure’) : Goods which do not fall under the category of private goods or Public
goods. They are –
◦ • non-rivalrous (like public goods), and
◦ • excludable (like private goods).

◦ Examples include public museums that charge an entrance fee and toll roads. All these are excludable because consumers must
pay to use them. Since the price system can be made to work here to exclude potential users, they could be provided by private
fi rms. However, they all have very large positive externalities, thus justifying direct government provision

◦ Correcting the market’s failure to provide public goods
◦ Discuss the difficulties of direct provision of public goods
◦ (a) which public goods should be provided
◦ (b) in what quantities they should be provided
◦ Limited government funds force choices on what public goods to produce
◦ each choice has an opportunity cost in terms of other goods and services that are foregone (or sacrifi ced).
◦ Not possible to make estimates of expected benefits by using the market price of the good as they are not produced by private
firms and have no price.

◦ Estimation can be done through cost-benefit analysis

Title Lorem Ipsum
LOREM IPSUM DOLOR SIT AMET,
CONSECTETUER ADIPISCING ELIT.
NUNC VIVERRA IMPERDIET ENIM.
FUSCE EST. VIVAMUS A TELLUS.
PELLENTESQUE HABITANT MORBI
TRISTIQUE SENECTUS ET NETUS.