Market Failure: Public Goods (DP IB Economics: HL)

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The Irish government has made sure that essential services like public transport and street lighting are widely available. These are often funded through taxation, as private companies would likely avoid offering these services due to their lack of profitability.

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In many cities, some residents benefit from public services like waste collection without contributing to the cost. This free rider problem becomes more pronounced as fewer people pay for the service, eventually leading to financial strain on the system.

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In comparison to public goods like clean air, private goods such as cinema tickets are typically sold by companies to individual customers. When tickets are sold out, others are excluded from attending the show, illustrating the limited nature of these goods.

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As more residents in Johannesburg bypassed paying for electricity, the city struggled with power outages and a lack of resources to maintain the grid. This growing free rider problem placed financial pressure on the electricity provider and led to a variety of problems.

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In 2023, the Spanish government increased its defence budget, but this decision came with a notable opportunity cost. Resources that could have been spent on social housing were instead diverted to military spending, raising concerns about how best to allocate limited funds.

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Public goods, such as national defence, benefit all citizens, while merit goods like education provide individual benefits but also offer wider societal advantages. Governments often step in to ensure both are adequately provided, though the nature of their provision can differ.