Public, merit and demerit goods

A public good is a product that is non-diminishable and non-excludable. This means that, once it is a provided, it does not matter how many people consume it – it will still be available to everyone. The addition of extra users does not reduce the amount that others can consume. For example, a lighthouse is a public good. Once it is built, all ships can benefit from it – it does not matter how many ships are passing by, they can all gain from the light being shown. This means that the provision of this service is non-diminishable. With private goods there is a limited amount available at any moment. More consumption by one person reduces the amount left for others; for example, if you buy a pair of Nike trainers in a shop then there is one less pair available at that particular moment for others to buy.

Public goods are also “non-excludable” because it is difficult to stop people (or ships) benefiting from them. Any ship passing by a lighthouse will gain from it. Similarly, if you install a street light or make an area safer by having regular police patrols, then everyone can gain and it is difficult to restrict the service to those who pay. The development of wireless networks has created a form of public good in recent years. Those in the vicinity can benefit from someone else’s network (unless security systems are installed).

The problem with public goods is that in free market firms will be unwilling to provide them because they cannot restrict consumption to those who pay for it. Households will be unwilling to pay for something that others will be able to benefit from and will try to benefit from someone else providing it. This creates the “free rider” problem: everyone will wait in the hope that someone else will pay for the service, so that they can be a free rider and benefit from it as well without actually paying for it. In this case the government has to step in to provide such products.

A merit good is one that society believes is more beneficial than private individuals do. For example, we may not appreciate at the time how important and beneficial education or healthcare is to us as individuals. In one sense, a merit good is like a positive externality; however, they occur specifically because the government may know more than us what is good for us (as opposed to positive consumption externalities where we may know the external benefits but not care about them). Merit goods would be under-consumed in the free market because we underestimate their benefits. For example, the government might sponsor the arts, opera, museums and art galleries on the basis that these are good for society as a whole.

Demerit goods are products which we might want to consume without appreciating the harm they are doing to us, for example, cigarettes. Once again, they arise because the government may know more than we do or may know what is in our best interests, and may therefore discourage or prevent consumption of them. We may thank the government later on when we appreciate how bad these products were.

I. Restore the word order in the questions and answer them:

1) for consumption a limited amount a public good available is?

2) a good available private is for everyone?

3) benefiting from public goods it is difficult to stop people?

4) consumption of public goods can free market firms restrict?

5) have to to provide public goods does the government step in?

II. Complete the following statements:

1) A public good is ….

2) In free market people....

3) Demerit goods are goods the consumption of which ….

4) Demerit goods are goods which people ….

2) Translate the text “The economic cycle”.

The economic cycle shows the pattern of economic growth that tends to occur in economies over time. Whilst there may be an underlying steady long-run trend, most economies experience an economic cycle. This is measured by changes in national income. Over time the stages that economies go through are: growth, boom, recession and slump. Whilst increasing national income is often an aim of government, so is stabilising its growth path. Instability and uncertainty tend to make planning difficult and deter investment. Firms may become wary of investing if they are not sure whether an economy is going to be doing well or not. Similarly, households may save more if there is greater uncertainty. If a government can provide stability then it can actually help the economy to grow faster in the long run.

Дата добавления: 2015-09-05