2. Public Goods versus Private Goods a) Explain the difference between a public

Question

2. Public Goods versus Private Goods a) Explain the difference between a public good and a private good, the latter of which is efficiently transacted in markets. b) Explain what property rights are (the right to use, exclude others, and to transfer), and how these separate private goods from public goods. c) Explain how paying for higher water quality, though a public good, was successful in the New York City example. d) Explain how paying for wildlife and biodiversity, though public goods, was accomplished in South Africa and Australia

Explanation / Answer

a. Public goods are both non excludable so that any individual cannot be excluded from the consumption of public good and also non rivalrous in consumption where use by one individual does not reduce availability to others. On the other hand, a private good is rival and excludable in consumption. A private good is efficiently transacted in the market because there is no problem of free ride in case of private goods which is seen in case of public goods.

b. Property rights refer to legal ownership of a specific property and the decision to use it in a particular way. It helps in market exchange and also affects the efficiency of resource use in the society. In case of private good property rights are clearly defined but in case of public goods, property rights are not clearly defined.

c. This is because people in New York were successful in revealing their true preferences or marginal willingness to pay and there was no problem of free ridership and the government could cover the marginal cost of operation and this led to successful allocation of public good in New York.

d. It was also accomplished through proper payment and true revelation of the people's demand and this led to accomplishment of the task in South Africa and Australia.

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