(L20) Public Goods & Poverty

1.) What are some of the problems with the concept of public goods?

There are two main issues with the concept of public goods (not including the fact that the government produces them with the public’s money). The first issue is the fact that even “public” goods such as railroads, streets, etc. can be limited to those who pay for them (in the first place). The second issue is the fine line between public and private goods, and the flimsy distinction between both. A rose garden in someones front yard for example, is privately owned. However, while it is not a public good, the passerbys on the sidewalk are not prohibited from enjoying it from the distance of the public sidewalk. Public goods are non-excludable to those who pay (but, how does one know if someone else has paid or not?). Private goods have rules set by the owners; so, in this case, how would one exclude someone who did not help pay for the rose garden? What about in the case of a public rose garden that one has not helped pay for?

2.) Describe the process by which the market economy tends toward an improvement in the standard of living.

The free market economy encourages saving and investment, which leads to an increase in capital goods, which ultimately creates a greater amount of consumer goods. A great amount of consumer goods reduces poverty by making the available consumer products cheaper. It also frees up people to move on to creating other consumer goods (because capital goods have made way for less hands to create the same amount of products in a shorter time). Increased production ultimately creates lower product prices relative to wage rates.

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