Provision not excuse the taxation of those who do

 

Provision of public goods via the taxation system comes down
to the common issue of the free rider problem. Those who pay for the good may
end up not using it while those who do not pay for the good will use it. In the
case of fireworks, the consumers who are taxed do not have a choice in the
matter and it is irrelevant if they want to watch the fireworks or not. This
provides them with an opportunity cost they did not even consider nor ask for and
hence is in a way unethical as they are being deprived of another alternative
without their agreement.

The free rider problem is an ethical issue on its own. We say
that the free rider problem is when people use products without paying for it
due to non-excludability and non-rivalry. Therein lies the unethicality as we
tax people who may not use the product to pay for those who may never pay for
it. While there is a possibility that those who do not pay for it may be going
through severe economic hardship, it does not excuse the taxation of those who
do not wish to view the fireworks as this takes away the opportunity for them
to invest on something else or consume a different product.

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In the case of constructing the demand curve for a public
good, the demand curve for the good is obtained by the vertical sum of all
individual demand curves. The ethical issue in doing this is that by doing
this, we also may miss out on adding the demand curves of those who do not have
any demand for the fireworks. The people who have no demand for the fireworks
still must pay the tax although they will not be viewing the fireworks. This is
unfair from the consumers point of view as they are paying for something that
they will not use when in fact the consumer may wish to invest that amount of
money on something else instead.

Part D

In this diagram we analyse how to derive a demand curve for a
public good such as Sydney’s New Year’s Eve Fireworks. We see two consumers,
Jess and Anthony who are willing to pay 30 dollars and 10 dollars for 10 units
of fireworks respectively. In the third diagram we have the market demand curve
for the fireworks at a price of 45 dollars which is obtained by the vertical
sum of all individual demand curves for the said quantity of 10 units. Each
demand curve is different in elasticity as we can see that Anthony is willing
to pay less for the fireworks since it is not as important to him as it is for
Jess.

Part C

Part B

 

The Free Rider problem is a market failure that persists with
the usage of public goods where people can take advantage of being able to use
a common resource or good by not paying for it. In the context of the New
Year’s Eve, Fireworks display, not everyone will be willing to pay to watch a
fireworks display, but those who do not pay will also be able to witness the
fireworks as it is displayed in public and is non – excludable as there is no
way to cover up fireworks.

A public good is a good that is provided to all members of
the society without profit by the government or a private individual or
organization. These goods are non-excludable and non-rivalled. This is to say
that the consumption of these goods will not reduce the consumption of the same
good by another person (non-rivalled) and no one can be stopped from using
these goods (non-excludable).