Module 37: Public Goods and Services

Private and Public Rival vs Non-Rival Excludable vs Non-Excludable

2 Kinds of Goods Government Provides

when a consumer may not use the good unless the consumer pays for it ex. laptop

Excludable

social programs, including Medicare, Medicaid, and Social Security (55%) national defense (20%) interest payments on the national debt (6%)

Most federal government spending goes toward

all people can use it, even if they do not pay for it ex. lighthouse

Non-Excludable

one person's use of a good does not reduce anyone else's use of it Ex. turn on the television to watch a show, you do not reduce anyone else's ability to see that same program

Non-Rival Good

taxes that support programs such as Social Security and Medicare

Payroll taxes

prevents another consumer from using that good at the same time Ex. one person is using a hammer, another person cannot use the same hammer. (Some rival goods are consumable. When the consumer uses the good, it is destroyed. Eating an apple is an example.)

Rival Good

when the benefits to society outweigh the costs

When does the government have reason to provide goods or services?

Goods that are excludable but are non-rival Ex. buy a movie ticket, it does not prevent another person from buying a ticket to the same movie. Therefore, the good is non-rivalous. However, if you do not pay the price of the ticket, you cannot enter the theater to view the movie, so it is still excludable. (Sometimes club goods become congested when they become more rival—when the theater is sold out, no more moviegoers can enter the theater.)

club goods

Goods that are non-excludable and rival Ex. lake in a public park stocked with fish is a good that does not exclude anyone, because they do not need to pay to enjoy the park. However, there are only so many fish in the lake to catch, so when a person catches a fish and keeps it, no one else may catch that same fish, making it a rival good.

common goods or common-pool resources

federal income taxes and payroll taxes paid by employers

federal tax revenue

When non-payers receive free goods or services

free-rider problem

cost-benefit analysis

how governments determine the costs and benefits of various programs and projects for the purpose of imposing taxes

a good that is excludable and rival Ex.a laptop, someone else cannot also purchase that same laptop, thus it is rival. In addition, the computer is excludable, because you must pay for the computer in order to use it

private good

goods that are non-excludable and non-rival Ex. Broadcast television is a good example. One person's viewing of a channel does not prevent another person's ability to view that same channel, so it is not rival. Even if you do not pay for cable service, you still will be able to view broadcast television, so it is not excludable

public goods

things that are non-rival and non-excludable things that are rival but non-excludable things that are non-rival but excludable

pure public good common public good local public good