Question

Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) French fries, (b) airport screening, (c) court systems, (d) mail delivery, and (e) medical care. State why you answered as you did in each case.

Short answer

(a) Market, (b) Government, (c) Government, (d) Government, (e) Market and government mix.

Step-by-step solution

Understanding Private Goods

Private goods are characterized by being excludable and rival in consumption. This means that individuals can be prevented from using them, and one person's use of the good reduces its availability to others. Market systems efficiently allocate these goods because they can leverage price mechanisms to distribute resources.

Understanding Public Goods

Public goods are characterized by being non-excludable and non-rival in consumption. This means that individuals cannot be easily prevented from using them, and one person's use does not diminish the availability of the good for others. Governments typically provide these goods because the market fails to allocate them efficiently due to a lack of incentive for private firms.

Analyzing French Fries

French fries are a private good because they are both excludable and rival in consumption. A person can be prevented from eating french fries by not purchasing them, and once they are consumed, they are no longer available for others. Therefore, french fries should be produced through the market system.

Analyzing Airport Screening

Airport screening is a public good. It is non-excludable because one cannot easily prevent others from benefiting from the security it provides, and it is non-rival because one person's security clearance does not diminish the protection available to others. As such, airport screening should be provided by the government.

Analyzing Court Systems

Court systems are public goods due to their non-excludable and non-rival nature. Everyone benefits from the rule of law and subsequent legal decisions, and one's use of the system does not prevent others from accessing it. Hence, court systems should be provided by the government.

Analyzing Mail Delivery

Mail delivery can have characteristics of both private and public goods, but it is often considered a public good since it is non-excludable and non-rival for basic mail services. It’s typically more efficient for the government to provide basic mail services to ensure universal access.

Analyzing Medical Care

Medical care is predominantly a private good as it is excludable through pricing and rival in nature, as one person's care may reduce availability for another. However, due to its merit good characteristics, there is often government involvement to ensure equitable access to essential healthcare, indicating a blend of market and government provision.

Key concepts

Market System

The market system is an economic framework where private individuals and businesses make decisions about what goods and services to produce, how to produce them, and for whom. This is often coordinated through the price mechanism, where prices are determined by supply and demand. In a market system, private goods are efficiently distributed because they are excludable and rival. Consumers compete by paying for goods, which reflects supply and demand. For example, items such as French fries are best produced through a market system. They are excludable because you need to buy them to consume them, and rival because when you eat them, they cannot be eaten by someone else. The price system aids in the allocation, determining how much is produced based on demand and willingness to pay.

Government Provision

Some goods and services are provided by the government because the market system does not efficiently supply them. These are typically public goods due to their non-excludable and non-rival nature. The government uses tax revenue to fund these provisions, ensuring that everyone can benefit from essential services, regardless of individual ability to pay. Airport screening is an example of a public good provided by the government. It is a crucial service ensuring safety and is non-excludable, as it is available to everyone at the airport. Additionally, it is non-rival because one person passing through security does not reduce its availability for others. Such services require government involvement to ensure public well-being and safety.

Excludable and Non-excludable

Goods are classified based on their exclusivity to potential consumers. Excludable goods are those from which non-payers can be easily excluded, such as a subscription service. Non-excludable goods, however, are available for consumption by everyone regardless of payment, such as a public broadcast. Mail delivery, especially basic postal services, is often seen as non-excludable. Access to mail services does not depend on individual payment, allowing society-wide access. This is why basic mail services are often government-provided, ensuring everyone receives important information regardless of economic status.

Rival and Non-rival Goods

Goods can also be differentiated by whether they can be consumed by multiple people simultaneously or not. Rival goods are those where one person's consumption reduces the amount available for others, while non-rival goods can be consumed by multiple people without impacting availability. Court systems exemplify non-rival goods because the utilization of legal services by an individual does not decrease their accessibility to others. Due to their public good nature, including non-rivalry, court systems are typically government-funded to ensure justice is accessible to all, maintaining societal order and protecting rights universally.