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  • Public Goods Merit Goods Club Goods: Basis of Distinction

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    Public goods are non-rival and non-excludable, meaning one person's consumption does not reduce availability for others and it is difficult to exclude people from consuming them. They are typically provided by the government because the private sector cannot profitably supply them. Merit goods are those that the government believes people will under-consume and should be subsidized so consumption does not depend on ability to pay. They have positive externalities and are provided by both public and private sectors. Club goods are excludable but non-rival, like natural monopolies which have high set-up costs.

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    Public goods are non-rival and non-excludable, meaning one person's consumption does not reduce availability for others and it is difficult to exclude people from consuming them. They are typically provided by the government because the private sector cannot profitably supply them. Merit goods are those that the government believes people will under-consume and should be subsidized so consumption does not depend on ability to pay. They have positive externalities and are provided by both public and private sectors. Club goods are excludable but non-rival, like natural monopolies which have high set-up costs.

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    6 views1 page

    Public Goods Merit Goods Club Goods: Basis of Distinction

    Uploaded by

    sohail merchant
    Public goods are non-rival and non-excludable, meaning one person's consumption does not reduce availability for others and it is difficult to exclude people from consuming them. They are typically provided by the government because the private sector cannot profitably supply them. Merit goods are those that the government believes people will under-consume and should be subsidized so consumption does not depend on ability to pay. They have positive externalities and are provided by both public and private sectors. Club goods are excludable but non-rival, like natural monopolies which have high set-up costs.

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    of 1

    Basis of Distinction

    Definition

    Public goods

    Merit goods

    Pure public goods are not normally provided


    by the private sector because they would be
    unable to supply them for a profit. It is up to the
    government to decide what output of public
    goods is appropriate for society. To do this, it
    must estimate the social benefits from making
    public goods available

    Merit goods are those goods and services that


    the government feels that people will underconsume, and which ought to be subsidised or
    provided free at the point of use so that
    consumption does not depend primarily on the
    ability to pay for the good or service

    Normally funded & provided by the


    government
    Marginal cost of supply close to zero if
    provided to one, it is provided to all

    Provided by both the public and private

    sector

    Positive marginal cost to supply to extra

    users

    Limited in supply may be a high


    Largely unconstrained in supply

    opportunity cost
    Characteristics

    Non-rival one persons consumption


    Rival consumption reduces availability
    does not reduce availability for others
    for others
    Non-excludable giving rise to the free rider
    Excludable
    problem
    Non rejectable - usually funded by general
    Rejectable by those unwilling to pay
    taxes

    The non-rival nature of consumption To encourage consumption so that positive


    provides a strong case for the government externalities of merit goods can be achieved
    rather than the market to provide and pay for for example free inoculation against infectious
    diseases
    public goods.
    Many public goods are provided more or
    To overcome the information failures
    less free at the point of use and then paid for
    out of general taxation or another general form linked to merit goods
    of charge such as a licence fee.

    State provision may help to prevent the


    On grounds of equity because the
    Why
    does
    the
    under-provision and under-consumption of government believes that consumption should
    government intervene
    public goods so that social welfare is not be based solely on the grounds of ability to
    improved.
    pay for a good or service

    If the government provides public goods


    they may be able to do so more efficiently
    because of economies of scale.
    Direct provision of a public good by the

    government can help to overcome the freerider problem which leads to market failure

    Club goods

    Excludable
    Non-rival
    Natural monopoly
    Artificial Scarcity

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