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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix


Public goods


Markets will tend to under-produce many goods and services that are in the nation’s best interest. These goods and services comprise two main types – public goods and merit goods.  Goods and services that are in the nation’s best interest but that are unlikely to be produced at all, such as defence, prisons, and lighthouses are often referred to as ‘public goods’.  Those that are produced and consumed in insufficient quantities, which includes services such as health, education, libraries, public parks, emergency services and public transport, as well as other important infrastructure necessary for the efficient operation of markets, such as road, rail and telecommunications networks are referred to as ‘merit goods’.  The under-production of both public and merit goods means that in a ‘free market’, too few resources would be allocated to the production of these products.


Pure public goods are those that have the following characteristics:



In economics, the problem of not being able to enforce payment from some consumers (i.e. non-excludability) is referred to as the free rider problem.   For example, if there were no government provision of lighthouse services, there is little to stop one ship from refusing to pay a private provider even though they use the lighthouse to prevent running into land.  Similarly, if there were no government provision of national defence, there is little to stop any citizen from refusing to pay a private producer for the service, even though they will still enjoy the safety that defence provides. The non-excludability of these 'public goods' creates the free rider problem.

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Click here to watch a short clip on public and private goods from The Corporation