Question

1. (10 pts).(a) In terms of rivalry, how does a “public good” differ from a “private good”?

(b) In talking about private and public goods, what is meant by “exclusivity”?

(c) In the case of a product creating a negative externality, with the product’s supply curve reflecting private costs be to the left or right of the supply curve reflecting social costs?

Answer 1

Ans) Public goods are those who are non excludable and non rivalrous in nature. That is, no one can be stopped from taking its benefit and also, one's usage of good does not reduce its availability for others. Eg- street lights, army etc.

While private goods are those which are both excludable and rivalrous in nature. That is, people can be barred from using the goods and services. Also, one's usage of good, reduces its availability for others. Eg- car, house etc.

1) So, we can say that while private goods are rivalrous in nature, public goods are non rivalrous in nature

2) From the above discussion, we can say that private goods are exclusive in nature while public good are non exclusive.

3) Negative externality is when the bystander bears the cost of any activity. Here social cost is more than the private cost and hence goods are overproduced. Eg- pollution.

Social cost curve is towards left of private cost curve. Or Private cost curve is towards right of social cost curve.

external cost Qefficient Qmarket