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Private Goods

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Group 5

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Optimal provision of private goods

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OPTIMAL PROVISION OF PUBLIC GOODS

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concepts:
1. nonexclusion: inability to prevent people from consuming a good despite they do not pay for it .
2. nonrivalry: one person consumes a goods, another people's pleasure is not diminished, nor is another person prevented from consuming it.
3. example : television broadcast signal (government) , national defense.
4. pure public good: no ability to exclude and no rivalry for benefits
5. price excludable public goods: external benefits when produced , eg, cable TV (Astro)
6. congestible public goods: after a point, the enjoyment received by the consumer is diminished by crowding or congestion. it is rivalry , eg, roads and parks.
7. efficient provision- bigger displays gives higher benefits, willingness to pay for different quantity, vertical summation that means quantity constant, prices varies. efficiency requires that the sum of individual marginal benefits equals the marginal cost. there are Lindahl equilibrium and Lindahl pricing. it refers to everyone in a group cooperates and participants each pay their marginal benefits. each individual should pays a marginal price equal to the marginal benefit the individual receives from consuming the good.

issues or problems:
1. free rider problem - it means that the incentives to let others pay for the public good while still enjoying the benefits. free rider is a person who seeks to enjoy the benefits of a public goods without contributing to the cost of financing the amount made available.

solutions:
1. government intervention through coercive power, that is through taxation
2. privatization means that taking services that are supplied by the government and turning them into the private sector for provision or production.