PUBLIC GOODS

What is a private good?

A private good is a good that is rivalrous and excludable, meaning consumption by one person reduces availability for others, and people can be prevented from using it if they do not pay.

What is a public good?

A public good is a good that is non-rivalrous and non-excludable, meaning one person’s use does not reduce availability for others, and people cannot be easily excluded from using it.

What does non-rivalry mean?

Non-rivalry means that one person’s consumption of a good does not reduce the amount available for others.

Give an example of a non-rivalrous good.

Street lighting is non-rivalrous because one person benefiting from the light does not stop others from benefiting too.

What does non-excludability mean?

Non-excludability means that it is difficult or impossible to prevent people who do not pay from consuming the good.

Give an example of a non-excludable good.

National defence is non-excludable because everyone in the country benefits, whether they pay taxes or not.

How can you distinguish public goods from private goods?

Private goods are rivalrous and excludable, whereas public goods are non-rivalrous and non-excludable.

What is the free rider problem?

The free rider problem occurs when individuals benefit from a good without paying for it, which reduces the incentive for private firms to supply it.

Why does the free rider problem mean public goods may not be provided by the private sector?

Because firms cannot easily charge consumers who benefit, they cannot make a profit, so the good is underprovided or not provided at all.

Give an example of a good that may not be provided by the private sector due to the free rider problem.

Street lighting or national defence, because people cannot be excluded and many would not pay voluntarily.

Why are public goods usually provided by the government?

Because the government can fund them through taxation, ensuring everyone benefits even if individuals would not pay voluntarily.

Can some goods be partly public and partly private?

Yes. These are called quasi-public goods (e.g., toll roads), which may be partially excludable but still have non-rivalrous aspects.

How do economists decide whether a good should be publicly or privately provided?

By considering rivalry, excludability, and market failure, i.e., whether the market will underprovide the good if left to private firms.

How does non-excludability create a market failure?

It leads to underproduction because firms cannot charge all users, so the market cannot allocate resources efficiently.

How does non-rivalry affect efficiency?

Since one person’s use does not reduce availability, it is efficient for everyone to consume it, but the market may not provide enough without intervention.