The Economics Book

46

PRIVATE INDIVIDUALS

NEVER PAY FOR

STREET LIGHTS

PROVISION OF PUBLIC GOODS AND SERVICES

E

ven within a well-functioning

market economy, there are

areas in which markets fail.

One important example of market

failure is in the provision of public

goods—goods that are to become

freely available to all, or where it

would be difficult to prevent their

use by non-payers. These goods,

which include things such as

national defense, are difficult for

a private firm or individual to

IN CONTEXT

FOCUS

Decision making

KEY THINKER

David Hume (1711–76)

BEFORE

c.500 BCE In Athens indirect

taxes are used to finance

city festivals, temples, and

walls. Occasional direct taxes

are levied at times of war.

1421 The first patent is

granted to Italian engineer

Filippo Brunelleschi to

protect his invention of

hoisting gear for barges.

AFTER

1848 The Communist

Manifesto advocates collective

ownership of the means of

production by the workers.

19th century Public street

lighting is introduced

in Europe and America.

1954 US economist Paul

Samuelson develops a modern

theory of public goods.

... private

individuals never

pay for street

lights.

Street lights are an

example of a public

good because...

... one person’s use of

street lighting does not

diminish another’s

enjoyment of it.

... it is difficult to stop

people from benefiting

from street lighting.

Private firms do not provide

street lights since they can't stop

non-payers from using them.

Essential public goods

are usually provided by the

government, because...