Question

a) Explain what is meant by the terms “non-excludable” and “non-rival”.
b) Why does this result in a public good being under-provided by the market? (detailed explanation)

Your answer will be marked according to the following categories.

• PART A
• PART B
• Clarity of Exposition
• Grammar

Answer 1

a) Non excludable and non rival goods are public goods which are used together by the members of the society, some people pay for it and another go without paying. Non excludable means a person or group of person can not be excluded from use of the good. Non rival means that use ( consumption) of a good by one person doesn't reduce the amount of available resource for others. Example — street lights, tower watch, music played in public etc.

b. Non excludable and non rival goods create a problem of free riders , those who don't pay for such goods also consume. Such goods create positive externalities. The social benefits of such goods exceed private benefits. So such goods are under provided by the market. Socially efficient quantity is higher than competitive quantity. To solve this problem the private producers should be provided with subsidies so that they can produce socially efficient quantity of such non excludable and non rival goods.