Cambridge - ECONOMICS paper 1public goods

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n practice, many goods that are non-excludable and non-rival in consumption can be provided by the private sector as well as or better than by government. Public goods are such goods that are non-ex... cludable-it is almost impossible to deny anyone the possibility of using the good - and non-rival- me using it does not restrict others from using it as well. The biggest practical problem of such goods is undersupply. The reasons behind the undersupply are: free riding and high transaction costs. Free riding occurs because it is difficult and costly for suppliers to exclude non-payers from using the good. Additionally, in many cases, it is costly to coordinate the expansion of the good among a number of suppliers, which results in higher costs for every one of them. There are two basic models explaining public goods undersupply. The first one is based on a market failure approach and the other one on a government failure. Samuelson’s view (on of the first ones) on that subject was that government intervention is needed to correct the market based unders [Show More]

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