Explain whether expressways and traffic lights are examples of public goods.

Public goods are those goods or services that are non-rivalry and non-excludable in consumption.

  • A good is non-rival in consumption if one person’s consumption of the good does not reduce the quantity available to another person. Because of this, once a public good is provided, the marginal cost of providing the good to an  additional user is zero.  With zero marginal cost, the basic principle of optimal resource allocation calls for provision of public goods and services at zero price or no charge. However, if the price is zero, no firm would want to supply the good.
  • A good is non-excludable in consumption if it is difficult to exclude non-payers from enjoying the good. This gives rise to a free rider problem. Since non-payers can also enjoy the good, no one would be willing to pay for it. As a result, demand is  concealed and difficult to estimate. With no price and marginal cost, this leads to   zero production resulting in complete market failure.

A.             EXPRESSWAYS

Rivalry

  • A motorist’s use of the expressway will not reduce the quantity available to other motorists. However, rivalry occurs when there is overcrowding during peak hours.
  • There is additional cost involved in allowing one additional motorist to be on the expressway during peak hours, such as the time loss due to traffic congestion. This means that there is a price that consumers would be willing to pay, hence producers will be willing to produce since it is possible for them to charge a price.

Excludability

  • Expressways can be treated in the same way as a public good, However, in reality, it is possible to exclude non-paying motorists from using the expressway. ERP

charges can be collected for the use of expressway, i.e. non-excludability in consumption. This can be done either manually or using the ERP gantry system.

  • There are administrative costs involved in collecting money for use of expressways

e.g. labour costs or the high initial cost of building ERP gantry. Hence, government may choose not to build the gantry at some areas and as a result there is non- excludability in consumption.

B.             TRAFFIC LIGHTS

Rivalry

  • The use of the traffic light by pedestrian does not reduce the “quantity” available to another pedestrian. This will mean that the cost of providing service of traffic light to an additional pedestrian is zero. Since optimal resource allocation is attained where  P = MC. Since the marginal cost of providing additional unit of traffic light is zero, it will efficient when the price of it is set at zero. Profit-maximizing producers are not willing to produce traffic light since they are unable to charge a price for the use of it.

Excludability

  • Once the traffic light is provided for a consumer, others who do not pay for the use gets to use the traffic light as well. There is no way to obtain payment from each consumer who is using the traffic lights. Hence, it is difficult to exclude non-payers from enjoying the service provided by traffic lights. This gives rise to the problem of free riders, and no one is willing to pay for the use of the service. As no one is willing to reveal his demand for public goods, this means that there is concealed demand.   In this case, no profit maximizing producers will want to produce traffic lights.

Conclusion

  • Traffic light is an example of public good as it satisfies the two characteristics of non- rivalry and non-excludability. Expressways can be considered as a public good although the characteristic of non-rivalry may not hold true all the time.#
  • For a good to be classified as a pure public good, it must satisfy the two characteristics of non-rivalry and non-excludability. Therefore, it can be concluded that traffic light is an example of public good, whereas expressway is not a pure  public good.

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