Public vs. Private Goods

1. Public vs. Private Goods Mr. Marinello * Chippewa Valley * Fall 2012

2. Defining Terms • Excludability: • Is the good limited to paying customers? Can you consume the good without paying for it? • Ipad • Tanning booth • Ice cream cone • Good have either high or low excludability • Good with low excludability • Fireworks displays • Roads • National Defense

3. Defining Terms • Rivalry or Rivalry in Consumption • Does one person consuming a good prevent others from consuming that same good? • High Rivalry Goods • Ipad • T-shirt • Ice cream sundae • Low Rivalry Goods • Roads • Cable Television

4. Public Goods • Good or service that is provided to society for the benefit of all because it is either too difficult to exclude some citizens and the cost of providing it to one more citizen is low. • Examples: • National defense • Google • Fireworks displays • It is a good that is non-rivaled and non-excludable. • Non-rivaled consumption: one individual does not reduce availability of the good for consumption by others • Non-excludable consumption: no one can be effectively excluded from using the good.

5. Rivalry in Consumption HIGH LOW • PRIVATE GOODS • Ipad • Clothes • Ice Cream cone • CLUB GOODS • Cable Television • Satellite Radio • Online subscriptions HIGH Excludability • COMMON RESOURCES • Free Clinic • Atmosphere • PUBLIC GOODS • National Defense • NPR • Google • Fireworks LOW

6. Why do public good exist? • Market failures • When someone who is not part of a market interaction benefits from it. • Example • Street lighting • It would be nearly impossible for a company to set up and charge for the use of street lights so government steps in and pays for this with taxes. • Free Riders • They benefit from the system and don’t pay for anything.