What are the characteristics of a “public good”? Why is it difficult for a private company to provide a public good?
There are two characteristics of a public good, nonrival and nonexcludable (Course Content, 2020). A good or service is nonrival when one personâ€™s consumption of the good or service does not diminish anotherâ€™s consumption of the good or service (Mayer, 2010). An example of a nonrival public good would be national parks and recreational areas. A nonexcludable public good is a good or service that cannot be withheld if someone does not pay for it, i.e., public highways (Mayer, 2010). It would not be cost effective or smart practice for a private company to provide or fund a public good or service, such as producing a highway which is normally funded by the tax supported public sector and the government for public and private access. So, in essence, private companies would have little to no incentive to provide public goods (Mayer, 2010).
Course Content, (2020). Week 6 Summary: Role of government: Market failures and price controls. Retrieved from. https://learn.umgc.edu/d2l/le/content/491801/fullscreen/16962284/View
Mayer, D. A. (2010). The Everything Economics Bookâ€¯: From Theory to Practice, Your Complete Guide to Understanding Economics Today. Everything. Retrieved from. https://eds-a-ebscohost.com.ezproxy.umuc.edu/eds/ebookviewer/ebook/bmxlYmtfXzQxODA4M19fQU41?sid=a829f2e2-d32e-4b67-98a3-ffb65c40f34b@sdc-v-sessmgr03&vid=0&format=EK&lpid=navpoint_14&rid=0
2. What does it mean when there is market failure? Give an example of market failure in the healthcare market?
Market failures are situations in which the market does not lead to the best situation for all people, and sometimes is not able to provide goods and services. The market is therefore ineffective in certain situations: presence of asymmetric information, externalities etc. Public authorities can intervene to correct these shortcomings.
Asymmetry is a key notion of regulation. Indeed, a competitive market works well when operators are in symmetrical relationships, that is to say that there is no structural obstacle which prevents an agent from increasing its power on its own merits (competition by merits ). For example, in the medical setting, patients do not have the same level of information as doctors or caregivers. In this case, health care providers have more power than the uneducated patients who have no clue about their conditions. Patient rely on doctors because of lack of knowledge. This shows that patients are uncertain when it comes to the status of their health or to make a decision. This information imbalance creates market failures.
Another crucial factor, externalities are a market failure because they are not traded economically. Thus, negative externalities have effects on the market and a cost that is difficult to measure. Externalities are situations where the action of an economic agent modifies the well-being of another agent without monetary compensation, that is to say without pricing by the market. There are positive externalities and negative externalities which, respectively, improve and decrease the well-being of the agent affected by the externality.
– Negative externalities: decrease the satisfaction of others. Pollution is an example of a negative externality: its cost is borne by the communities it affects, not by the company that produced it. There are several types of pollution. Air pollution is linked to the release of harmful substances into the air. Water pollution has consequences for flora, and water quality. Soil pollution is most often linked to the use of fertilizers and pesticides.
Positive externalities: increase the satisfaction of others but not enough production, the state must encourage them to establish rewards. Vaccinations are considered as positive externalities because they benefit everyone.
UMUC (n.d) Week 6 Summary PowerPoint Presentation
Health care market failures (and what can be done about them). (2014, January 8). The Incidental Economist. https://theincidentaleconomist.com/wordpress/health-care-market-failures-and-what-can-be-done-about-them/