Public,private and merit goods

Public, private and merit goods

1. 1 Public Goods V/S Private Goods And Merit Goods By V.A.Chowdappa Dept of Economics VSK University

2. 2 CATEGORIES OF GOODS: PUBLIC GOODS The indivisible goods, whose benefits cannot be priced, and therefore, to which the principle of exclusion does not apply are called public goods. The use of such goods by one individual does not reduce their availability to other individuals. For example, the national defense.

3. 3 Characteristics of Public goods Non-rival in consumption: - One person’s consumption does not diminish the amount available to others. Once produced, public goods are available to all in equal amount. Marginal cost of providing the public goods to additional consumers is ZERO. Non-excludable:- Once a public good is produced, the suppliers cannot easily deny it to those who fail to pay. That is, those who cannot (or do not agree to) pay its market price are not debarred or excluded from its use.

4. 4 3. Free-rider problem: - People can enjoy the benefits of public goods whether pay for them or not, they are usually unwilling to pay for public goods. This act is the so-called free-rider problem. PRIVATE GOODS Private goods refer to all those goods and services consumed by private individuals to satisfy their wants. For example, food, clothing, car etc.

5. 5 FEATURES OF PRIVATE GOODS 1) Excludable: - The suppliers of private goods can very well exclude those who are unwilling to pay. 2) Rivalry in consumption: - One person’s consumption reduces the amount available to others. That is, the amount consumed by one person is unavailable for others to consume. 3) Revealed Preference: - The consumers reveal their preferences through effective demand and market price. These revealed preferences are the signals for the producers to produce the goods the individuals want.

6. 6 CHARACTERISTICS RIVAL NON-RIVAL EXCLUDABLE PRIVATE GOODS CAR PIZZA FOOD QUASI-PUBLIC CABLE TV, UNCROWDED SWIMMING POOL NON-EXCLUDABLE OPEN ACCESS OCEAN FISH MIGRATORY BIRDS PUBLIC GOODS NATIONAL DEFENCE SREET LIGHT

7. 7 MERIT GOODS This concept was introduced by prof.R.A.Musgrave in 1959. Those goods whose consumption and use are to be encouraged are called merit goods (e.g.; education ) and goods whose consumption and use are to be discouraged are called non-merit goods or demerit goods (e.g., liquor, narcotic etc.) drugs Merit goods are socially desirable goods which promote social welfare. Merit goods are rival and excludable.

8. 8 Governments provide merit goods in order to ensure distributional justice . These are goods which governments feel if people will under consume or produce and therefore should be subsidized or provided free. Examples of merit goods are education, mid-day meals in schools, essential food articles etc.