Choose a public good in the market and explain how the chosen product fits into the characteristics. Decide if market fails for the chosen product in the market. Discuss.

• Introduction to the chosen public goods
• Explanation of how the chosen public goods fits its characteristics
• Decision on whether market failure happens for the chosen public goods
• Suggestions to overcome the economic problem of the chosen public goods

PUBLIC GOODS- THE COLLECTIVE CONSUMPTION.

Those goods or services that are provided by the government or any individual organization to all the members of the society not to make any profit but for the larger public good.

Characteristics of a public good:

a) Non Excludable.

b) Non Rivalrous.

Non Excludable means selling it one customer and leaving the other is not possible. .

Say for example you bought hot dogs for yourself or for that matter a pizza , it's completely upto you whether or not you want to share it with your brother or not. Which means pizza or hot dogs being private goods are Excludable , in other words , we can always exclude someone from having it . Now take the example of the fire service in your area. Even if you hate Paul -the fireman because he beats his wife every night , the fire service will help out if your house is on fire.

Public goods are thus non - excludable.

Non Rivalrous means there are no rivals in a public good. Someone had it doesn't mean you can't have it.

The National defence protects you as well as the whole country. The fact that it's protecting your neighbour as well as you means everyone can have their share but the whole will not decrease.

2.

Now let's choose a product ;

National Defence .

Now let's see if it fits the above characteristics of a public good.

Non Excludable: yes.

You can disagree from the policies of the national defence but it will nonetheless protect you. You or anyone else in the country can't be excluded.

Non Rivalrous: yes.

Its not like if you and your family is protected by a foreign invasion , your neighbour won't be . Both of you will be .there is consumption of the good by one person does not reduce the amount available for others to consume. Thus, all of the people in a nation "consume" the same amount of national defense (the defense policy put in place by the government). Second, the benefits a person derives from a public good do not depend on how much that person contributes toward providing it. Everyone benefits, perhaps in differing amounts, from national defense, including those who do not pay taxes. Once the government organizes the resources for national defense, it necessarily defends all residents against foreign aggressors....

3. Yes the chosen public good can cause a great market failure when people use the services but decide not to pay for the taxes that are to be used in buying the necessary artillery for the defence.

Because public goods are non-excludable it becomes quite difficult to charge the public for benefitting from the good or service once it is made available.

Again the free rider problem leads to under-provision of a public good and thus results in a market failure.

4. Public goods can either be financed with Voluntary Anonymous Contribution ( VAC) or taxes paid by the government.

In a perfect equilibrium state of the nation , we would be completely able to solve the economic problem of the public goods

as there would exist a socially optimal level of social good wherein there will be a set marginal willingness to pay for one more unit of a public good to the marginal cost of producing one more unit.

So we can conclude that the economic problem of the public good in our case the National Defence can only be solved with a sound taxation policy.