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IPF Assignment 2

Public goods are non-excludable and non-rivalrous, meaning one person's consumption does not reduce availability to others. Examples include national defense and street lights. Private goods are rivalrous and excludable, like pizza or healthcare. For public goods, quantity is constant while price may vary through taxes. For private goods, price is constant while quantity can vary. A government can achieve more efficient resource allocation with market dominance through policies like regulation, while without dominance it can use policies like providing public goods.

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Nitesh Mehla
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76 views

IPF Assignment 2

Public goods are non-excludable and non-rivalrous, meaning one person's consumption does not reduce availability to others. Examples include national defense and street lights. Private goods are rivalrous and excludable, like pizza or healthcare. For public goods, quantity is constant while price may vary through taxes. For private goods, price is constant while quantity can vary. A government can achieve more efficient resource allocation with market dominance through policies like regulation, while without dominance it can use policies like providing public goods.

Uploaded by

Nitesh Mehla
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 2

1. How do you understand public goods and how is it different to private goods?
Explain with real life examples

Answer:

Public good is a good that is both non-excludable and non-rivalrous. The consumption of
such goods cannot be dismissed or unaccepted by the public since it is available collectively
to all the people. The goods categorized under public goods benefit even those who have not
paid for it. Such people are termed as free-riders.

Non-rival: Cost of one person consuming the good is zero. This means that when a good is
consumed, it doesn’t reduce the amount available for others. For example, benefiting from a
street light doesn’t reduce the light available for others but eating an apple would.

Non-excludable: Very expensive to prevent others from consuming the good. This occurs
when it is not possible to provide a good without it being possible for others to enjoy. For
example, if you erect a dam to stop flooding – you protect everyone in the area (whether they
contributed to flooding defences or not.

Examples: National defence, House cleaning in an apartment with many roommates,


Fireworks display, Music file sharing, Uncongested freeway.

Quantity remains constant, Price may vary (tax).


At equilibrium, QA = QB = QC = Q
Market demand is obtained by vertical integration.

Private goods are the ones which are manufactured and sold by the private companies to
satisfy the consumer needs and wants. Availability of the good reduces with each
consumption. It is both Rival and Excludable. Private goods can be unaccepted or rejected by
the consumers since they have multiple alternatives and the right to select the product
according to their preference. Such goods can be freely bought and sold in the market at a
given price. These goods have an opportunity, i.e. the consumer has to let go of the benefit
from a similar product while selecting a particular private commodity.

Examples: Pizza, Health care, Congested freeway, Public housing

Price remains constant, Quantity variation allowed.


At equilibrium, PA = PB = PC = P
Market demand is obtained by horizontal integration.
2. What are the policies a government might adopt to achieve a more efficient allocation
of resources where there is market dominance?

Answer:

3. What are the policies a government might adopt to achieve a more efficient allocation
of resources where there is no market dominance?

Answer:

4. Solve the below problem.

PX = 0.05 – 0.05Qx
PY = 0.10 – 0.015QY
MC = 0.075 Q

If X and Y are two individuals, answer the followings:


1. Price and quantity for public goods
2. Price and quantity for private goods
3. What is the price and quantity coverage under zero marginal costing.

Answer:

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