Explain the challenges of a business trying to sell a public and private goods.

Expert Solution

Private Goods - They are those goods whose price and quantity is determine by market forces . It has 2 characteristics which are it is rivalrious and excludable. It is owned by private individual. For example , clothes , shoes etc.

Challenges for private goods -

Price - As in the market there are various rivals and we have large number of consumers. So, in order to attract consumers rivals keep price fluctuating according to the competition . They try lower the price so that they can attract consumers. So They have to compete with lower price rivals as this reduce profits, so those who have lower cost only they can survive in this situation.

Survival - As we have large number of firms in other words large number of competitiors. So in order to survive in the market firms should come with unique quality in their product so that they can get consumers inspite of having large number of rivals and also they have to produce effeciently and also we have to meet customer needs.

Decision makers - So decison play a important role. Decision have to be meade according to the demand , according to competition or according to the scenrio so that firms can fetch large benefits from the sale. So decison making is also a big challenge.

Risk management - Risk is from two sides from the supplier side and from the customer side. So you there is great involvement of risk to sell private goods because they have make lots of cost in making the product so if it is not ful filling customer need then it is no no use to incur so much of cost. For example , if you ahve produced particular good but customer is not responding well for that good that means your cost goes waste as it is not up to the clients demand. So , it involves risk.

Proposal writing -Once you got good response from customers it has to be your work to stay connected with them so that you can again get them , and also you have to do the reasearch so that you can do best on it.

Public goods - They are opposite of private goods . It is specially for the welfare of the society and are provided free throgh public taxation. It mainly has two characteristics Non - excludable and non - rival. For example , roads , parks etc .

Challenges for public goods

Free Rider - In these type of goods there is a problem of free rider because of its two characteristics. For example , If there is a street lighting, without paying anything for it people get benefit from this. So this is a problem in case of pulbic goods.

Cost of Public goods - It is usually high as this is for non profit motive and it involves large population so it has huge cost.

Valuation of Free rider - Valuation of free rider cannot be done , as how much they are benefitting we can not estimate that as it has characteristics of non excludable and non rival . so it is difficult to do valuation

Market failure - These goods are not provided by private individuals as they need profit but public goods are made for society. So, in this government has to decide output suitable for the society for this it extimate social benefits. It creates market failure as some customers pay but others dont pay but use it so this lead to market failure.

Rahul Sunny answered 2 years ago

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