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The role of government in paying for public goods

The key insight in paying for public goods is to find a way of assuring that everyone will make a contribution and to prevent free riders. For example, if people come together through the political process and agree to pay taxes and make group decisions about the quantity of public goods, they can defeat the free rider problem by requiring, through the law, that everyone contributes.

However, government spending and taxes are not the only way to provide public goods. In some cases, markets can produce public goods. For example, think about radio. It is nonexcludable, since once the radio signal is being broadcast, it would be very difficult to stop someone from receiving it. It is nonrivalrous, since one person listening to the signal does not prevent others from listening as well. Because of these features, it is practically impossible to charge listeners directly for listening to conventional radio broadcasts.

Radio has found a way to collect revenue by selling advertising, which is an indirect way of “charging” listeners by taking up some of their time. Ultimately, consumers who purchase the goods advertised are also paying for the radio service, since the cost of advertising is built into the product cost. In a more recent development, satellite radio companies, such as SirusXM, charge a regular subscription fee for streaming music without commercials. In this case, however, the product is excludable—only those who pay for the subscription will receive the broadcast.

Some public goods will also have a mixture of public provision at no charge along with fees for some purposes, like a public city park that is free to use, but the government charges a fee for parking your car, for reserving certain picnic grounds, and for food sold at a refreshment stand.

Read this article to find out what economists say the government should pay for.

In other cases, social pressures and personal appeals can be used, rather than the force of law, to reduce the number of free riders and to collect resources for the public good. For example, neighbors sometimes form an association to carry out beautification projects or to patrol their area after dark to discourage crime. In low-income countries, where social pressure strongly encourages all farmers to participate, farmers in a region may come together to work on a large irrigation project that will benefit all. Many fundraising efforts, including raising money for local charities and for the endowments of colleges and universities, also can be viewed as an attempt to use social pressure to discourage free riding and to generate the outcome that will produce a public benefit.

Common resources and the “tragedy of the commons”

There are some goods that do not fall neatly into the categories of private good or public good. While it is easy to classify a pizza as a private good and a city park as a public good, what about an item that is nonexcludable and rivalrous, such as the queen conch?

Questions & Answers

Difference between demand and supply
Kareem Reply
demand talks about the consumers and supply also talks about producers
Bright
demand talks about the relationship between price and the quantity demanded for a certain goods and supply talks about the relationship between price and quantity supply of a certain goods .
Mutala
describe the issue gain from trade will improve economic growth and living standard.
Allison Reply
discribe gain from trade will improve economic growth and living standard
Allison
discribe gain from trade will improve economic growth and living standard
Allison
what is the outcome of exchange rate?
Allison
what is utility
Roberta Reply
what is the relationship between the elasticity of demand and total revenue
Atedago Reply
I don't know
Taofeek
negative. but for unit elasticity of demand, the relationship doesn't exist between them.
Ali
what is income elasticity of demand
Esther Reply
income elasticity of demand measure the degree of responsiveness of demand for a commodity to a small change in the income of the consumer
Atedago
monopolistic competition has all except which of the following basic characteristics?
Sharon Reply
what are the Features of money
Abubakarr Reply
how to calculate the elasticity of supply?
Asnaira Reply
PES=Qs2-Qs1/Qs1÷P2-P1/P1
Soko
why is economics important
Gifted Reply
why is it important
Gifted Reply
for what?
Vicky
economics
Gifted
what is demand
Mutala Reply
Demand Is Anything that A Customer are willing and able to buy at different price level.
Basit
what demand schedule
Mutala
demand schedule is a tabular representation of different quantities of commodities that consumers are willing to purchase at a specific price and time while other factors are constant.
MEOW
A full account of the demand, or perhaps we can say, the state of demand for any goods in a given market at a given time should state what the volume (weekly) of sales would be at each of a series of prices. Such an account, taking the form of a tabular statement, is known as a demand schedule.
MEOW
State the type of elasticity of demand
Emmanuel
price elasticity of demand . and it refers to the degree of responsiveness of change in quantity demanded for a commodity to a change in price if the commodity itself
Mutala
Are firms primarily buyers or sellers in the goods and services market? In the labor market?
Fardeen Reply
market of good and service
Noel
what is the meaning of demand an supply
Hawanatu Reply
quantity of product consumed by customer due to quantity produced by producer
Noel
What is insurance of companies
Oppong Reply
a financial institution that provides a range of INSURANCE policies to protect individuals and businesses against the RISK of financial losses in return for regular payments of PREMIUMS.An insurance company operates by pooling risks amongst a large number of policyholders.
MEOW
differentiate between demand and money supply
Mary Reply
While the demand of money involves the desired holding of financial assets, the money supply is the total amount of monetary assets available in an economy at a specific time.
MEOW

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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