Question

What is the economist’s definition of public goods?

Why are public goods associated with market failure?

How do the free rider problem and shirking contribute to this form of market failure?

How are public goods funded? For example, how are street lighting or radio signals funded?

Answer 1

Ans 1=Public goods-are socially advantageous yet are nearly never manufactured by free markets. These have 3 attributes, namely-nonexcludability, nonrivalry, nonrejectability.

Ans 2=These are linked to market failure as-

• These aren’t usually supplied by the corporate sector as they wouldn’t be able to supply them for a profit.

• It is up to the state to ascertain what output of these goods is apt for society.
• To do so, government must anticipate the social advantages from offering public goods .

Ans 3=

• As public goods have the attribute of non-excludability it is tough to charge individuals for benefitting from a public good once it is supplied

• The free rider issue causes under-provision of a good & hence leads to market failure

Ans 4=These goods are usually funded by business owners / the government via taxation revenues