• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Public Goods

Extracts from this document...

Introduction

Public Goods The government spends huge sum of money each year on public goods. To understand the nature of these goods more clearly, and why the government is left to provide these for people throughout the economy, we must consider the characteristics of private goods Private Goods A private good has three main characteristics: Excludability: Consumers can be excluded from consuming the product if they are not willing to pay for it (for example - a ticket to the theatre or a meal in a restaurant) Rivalry: One person's consumption of a product reduces the amount available for other people to consume - because scarce economic resources are used up in producing and supplying the good or service Rejectability: Private goods and services are rejectable - if you don't like the look of the soup on the college menu, you can reject the chance to consume it and use your money to buy something else. Characteristics of public goods The characteristics of pure public goods are the opposite of private goods. They are services which are clearly in demand, but which must be provided collectively by the Government for two main reasons: Non-excludability - goods cannot be confined to those who have paid for it. ...read more.

Middle

Externalities are pervasive. The negative externalities of air and water pollution have long been of concern. Recently, the problems of global warming (a negative externality associated with excessive carbon dioxide emissions, notably from cars and power stations) and the depletion of the ozone layer (associated with the use of chlorofluoro-carbons, primarily in aerosols and refrigeration systems) have attracted world-wide attention. But these are also positive externalities such as the benefits associated with vaccinations and education. Why externalities cause a misallocation of resources? In the presence of externalities, the equalities between private and social costs and benefits no longer hold. A negative externality imposes a marginal external cost (MEC) that enters into the marginal cost but not the marginal private cost (MPC): MSC = MPC + MEC. It is apparent that whenever MEC is nonzero MSC willl not equal MPC and there will not be an efficient allocation of resources. There is market failure. An efficient allocation of resources requires that marginal social cost (MSC) equal marginal social benefit (MSB). The theorem holds only if MSC=MPC (marginal social cost equals marginal private cost) and MSB=MPB. In the presence of externalities, these equalities between private and social costs and benefits no longer hold. ...read more.

Conclusion

Under discussion as a response to the problem of global warming, carbon dioxide would involve levying taxes on all goods that emit carbon dioxide in production or consumption, with the rate of tax determined by the amount of carbon dioxide emitted. (iii) Effluent fees: Another possible form for government intervention is to impose effluent fees. In contrast to Pigouvian taxes which tax the good that generates the externality, effluent fees tax the externality itself. The offending firm is charged a fee of $x per cubic metre of pollutant emitted. The advantage of this approach over Pigouvian taxation is that it creates an incentive for the firm to explore alternative production techniques that are cleaner (i.e produce less of the externality). (iv) Direct Regulation: This involves Government setting maximum levels of emissions for different pollutants. Under this approach, firms are legally required to reduce their emissions to these levels (regardless of the cost). Direct regulation, like effluent fees, creates an incentive for firms to choose the most efficient production technique. However, it does not reduce the level of pollution in the most efficient manner because it fails to take advantage of the fact that some firms may be able to reduce their emissions at much lower cost than others. It may, however, be significantly easier (and hence less costly) to monitor than effluent fees. By Afzal Yearoo ?? ?? ?? ?? 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Retailing In India - A Government Policy Perspective

    While doing this, we try to identify the stakeholders in the process of retail change, understand their viewpoint and their relevance as potential bottlenecks, and finally define how best to address their issues. Permit FDI in retail FDI has played a key role in the rapid development of high quality retail in several other developing countries.

  2. Discuss the view that the free market economy encourages negative externalities and thus the ...

    Problems that arise from negative externalities show evidence that the economic system is "failing". This failure however is due to the fact that the market is not allowed to function properly rather than because it is. If the necessary institutional conditions for a free market process are not present then the free market can hardly be blamed.

  1. How do different economic systems ration scarce resources? To what extent it is ...

    Thus as the nation concentrates more and more on the production of one good, it has to start using resources that are less and less suitable. For example, these are the maximum possible combinations of food and clothing that can be produced in a given period of time.

  2. Split Votes: A Nation Divided on the Marijuana/Drug Legalization Debate

    Johnson claims that "in the late 1970s we were spending a billion dollars federally on the drug war . . . [and] arresting a few hundred thousand people" (Bad Choices). "Today, the feds are spending $19 billion a year on the drug war .

  1. Victoria Junior College

    gave US$13 billion to Europe, and the Alliance for Progress which saw the US provide $10.3 billion to Latin America between 1961-69, were only two examples of US financial assistance in the post-war years. Pollard cites this as a factor in the weakening of US economic hegemony "These activities not

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    of the strategies set up to reach the goals of the Lisbon agenda and to outperform the American economy by 2010. However, although the elimination of currency exchange risk and the high degree of integration probably has substantial positive effects on the competitiveness of the European economy, its implications for

  1. Transport - The movement of goods and people from one destination to another for ...

    loss of output & use of health service resources * Damage to buildings - by pollution & vibrations * Destruction of wildlife * Congestion Currently, vehicle owners only pay taxes such as petrol tax, to the government to pay for these externalities & maintain roads.

  2. What are the Academic arguments for and against public body regulation

    Because they wanted to sustain their profits in order to keep their bonuses. If someone independent was around then they might have reduced the S&P's exposure to interest rates and increased their reserves and provision and thus avoiding the crisis.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work