hi everybody have you ever wondered why goods like flood defenses road signs streetlights roads beaches traffic lights lighthouses the military defense are all goods provided by the government and not through the market mechanism themselves where we directly pay for them well the simple reason is that they are examples of public goods pure public goods have got two fundamental characteristics they are non excludable and they are non rival very weird very unique characteristics that apply to pure public goods here and very much the opposite of what the characteristics of a private good are what is non extra nobility well non excludability means that no price can be charged for a public good that excludes others that haven't paid and there are two reasons why maybe no price can be tired for public good one is that the benefits of consuming the good cannot be confined just to the individual who's paid for it that's a very weird characteristic is normally when we go to a shop let's say we buy chocolate bar if we consume that chocolate bar only we get the benefit not other people around us who haven't paid not the case for a public good even if someone pays those people around might be able to benefit in exactly the same way without having paid for it very strange but also maybe no price can be charged because there might not be a cost-efficient way of pricing maybe the way of pricing is too expensive it's not maybe an efficient way of pricing but public goods are also non rival and that means are the quantity available of the good does not diminish upon consumption again that's really weird go back to my chocolate bar example that we can see a chocolate bar there's one less available for everybody else right and not the case for a public good if somebody consumes it the quantity available remains exactly the same for everybody else that wants to consume it very strange in unique characteristics here and if we apply it to some of these examples you'll see how it holds so take street lights as an example no price can be charged because as soon as someone pays the benefits cannot be confined just to that person everybody else around can also enjoy the street light and consume it also you can argue maybe there's no cost effective way to price there are also non rival street lights because when they're consumed the quantity available does not minish for everybody else so just because you might have paid for a streetlight it turns on and you stop using it it doesn't have switch off automatically it stays on for everybody else the quantity available does not diminish upon consumption you can argue the same thing further beaches take beaches as an example here I'd say it's not excludable because we're number two year there is no cost efficient way to price in theory there is a way private producers could build walls right and exclude people from accessing the beach and then have booths so people have to pay to enter a beach but that's not cost-effective at all it's a very expensive thing to do for a private producer and also features a non rival why the quantity of the beach doesn't diminish upon consumption Beach is a massive right so just because one person enters a beach it doesn't reduce the amount available to others so those characteristics apply you can do it for all of these different two examples of public goods here the issue is that because of these two characteristics we get to the free rider problem where individuals have the incentive not to contribute anything at all to the provision of the public good because they'll wait for others to contribute and then free right off their contributions and they know they can do that because the benefits can't be confined just to the person that's pay so then themselves can benefit without paying they also know that if that person does pay and they consume the same amount will be available for them to consume as well so the incentive is for individuals not to pay for public goods themselves but to wait for others to pay and to free write off their contributions then the big problem there is that if everybody acts that way no one's going to pay towards the provision of public goods at all there will be no contributions and therefore there is no private motive to supply them why would a private firm supply them if no one's going to pay and that's well there is no chance of making profit here so no private firm is going to supply there is going to be absolutely none supplied in the free market zero supply in the free market the end result will be a missing market complete market failure the worst kind of market failure is clay there is huge demand for all of these things massive demand very socially desirable goods here but if there is going to be no supply you've got the worst kind of market failure complete market failure and a missing market but it's important guys that we don't just stop there we need to be thinking of it deeper because if we agree with that conclusion it means for all of these goods the only solution is for governments to provide them using tax revenue but if we can maybe evaluate we can maybe find unique ways of agreeing for private provision and one way of evaluating is by looking at the notion of a quasi public good a quasi public good is a public good that sometimes shows the pure characteristics of a public good so both characteristics but sometimes we'll show the characteristics of a private good ie it can be excludable or it can be rival and two good examples are roads and beaches and if we agree on that then maybe we can find a way for private provision somehow so take roads can roads be excludable absolutely they can through toll roads now toros might not be the most efficient way of pricing but it certainly can be done and with technology improving in the world it doesn't have to be a physical toll booth it could be like a camera that scans her a license plate and takes money away from a car that's a electronic road pricing like we see in Singapore so roads certainly could be excludable which which changes the game completely roads can also arrival right during peak times during congestion times where road space does diminish upon consumption so you can argue the Rosi requires a public good here you can only the same thing for beaches could beaches be excludable absolutely if maybe your hotel could own a beach and only provide access to the beach for those who have actually paid to use the hotel that way beaches become extremely beaches could also be rival during peak times congestion times summer holiday periods where one person using the beach might actually reduce the availability to others if the beach has already massively congested so if that's the case if we can get to this conclusion for some public goods that might be argued to be pure then maybe we can find a way to argue that private provision might be able to take place instead of having to go towards government and allocating resources to these public goods and always think about the role of technology I mentioned technology when it comes to making roads excludable but technology certainly has helped it may be finding more cost-effective ways to price and therefore may be making pure probably goods not public goods anymore but maybe private goods very interesting evaluation now to consider anyway so that's public goods and why pure public goods can lead to market fairly the worst kind complete market failure and missing market hopefully now you understand this topic one you can smash it thank you so much watching guys I'll see you all in the next video