Question

Moral Issues in Business 11th Edition Chapter 4 Reading 4.2 Markets and the Role of Ethics in Capitalism Question 4

What are "public goods"? Give some examples. How do they show the limits of the market mechanism? Is education a public good? Explain why or why not?

Answer 1

Public goods are non-rival non-excludable goods. That means, those goods whose consumption by one person does not affect consumption by another person and also for those it is difficult to exclude someone form consuming it. These goods are generally provided by the government for social welfare

E.g. street light, national defence

These goods show limits of the market mechanism because these goods cannot be efficiently provided by free markets and often lead to market failure because these goods lack well defined property rights. In the absence of well defined property rights, it becomes difficult to find out who will provide the good, for whom and who will pay for it. Also, the problem of free riding is very high in such goods, leading to market failure.

Public education is not a pure public good, in the way that private players have entered the market and started making money from it since they know it is a public necessity and people do need it and would pay for it. However, it is public good in the sense that education by one student in the class does not affect education of another student in the class. This non-rivalry feature of education along with its socially welfare nature stops it from being a pure private good.