The advantages and disadvantages of public provision of certain key services

University: Business Studies

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Goods are either provided with in the market known as a private good or outside of the market known as a public good.

A private good is one that is bought and sold between individuals, an individual that does not want to pay a given price for a given good will simply not buy it. In this instance the person who provides the good can enforce the private property rights and thus excluding those who aren’t prepared to pay from using the good. The market is said to be in ‘pareto efficiency’ when it is impossible to make one person better off without making another worse off. This position will depict an allocation of goods that satisfies all consumers.

Not all goods can be bought and sold within a market, there may be direct i.e. non-market effects on the welfare or production possibilities of one person as a result of another persons production / consumption decisions. The benefit or cost accruing to another other than the original user is known as an externality. Externalities can be positive or negative, a negative externality would be the pollution from a factory as a result of production processes. An externality could also be positive i.e. an attractive garden would benefit all.

A public good on the other hand is a good that must be provided in the same quantities to all consumers, e.g. street lighting. Public goods are non – rivalrous i.e. by one person benefiting another is not suffering, they are also non-excludable, meaning that if the good is provided to one person it must be provided to all others.

Some public goods are known as quassi – public goods, meaning that the market could in theory provided the goods but do not for various reasons. Instead, the good is provided by the often for zero price and funded by taxation. Acquiring the good or service in question will be considered efficient if the combined value of willingness of all consumers exceeds the cost of providing that good or service.
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