Get premium membership and access questions with answers, video lessons as well as revision papers.

Explain why the free market would fail to provide sufficient public goods.

      

Explain why the free market would fail to provide sufficient public goods.

  

Answers


marlyne
A public good is a good (or service) which has the following
characteristics:
1. It is non-rival: This means that consumption by one person does not reduce the amount available for consumption by another person. The provision of street lighting illustrates the concept of non-rivalry, because if one person uses the light provided by the streetlight it does not prevent another person from benefiting from the light.
2. It is non-excludable: This means that once the good/service is provided no person can be excluded from benefiting. Using the example of the streetlight again once the light is provided no person on that street can be prevented from using it.
Since public goods are non-excludable it is impossible to prevent someone from consuming them once they are provided. No rational economic agent would be willing to pay for public goods since it would be in their best interest to wait for someone else to pay for them and they could then free ride on others. Because of this free rider problem public goods would not be provided in a free market economy.
The only way around the problem is for the state to provide public goods and force everyone to pay for them through taxation or other compulsory charges. This is the reason why the government provide street lights, defence.
marlinbito answered the question on July 5, 2018 at 10:09


Next: Explain what is meant by the term market failure.
Previous: Critically examine the view that government intervention to correct market failure is likely to make matters worse.

View More Economics Questions and Answers | Return to Questions Index


Learn High School English on YouTube

Related Questions