1.3.3 Public goods

Question 1

Distinction between public and private goods using the concepts of non-rivalry and non-excludability

Answer 1

Public goods are missing from the free market, but they offer many benefits to society. They have two key characteristics:

• They are ​non-rivalry​, which means that one person’s use of the good doesn’t stop someone else from using it
• They are also ​non-excludable​, meaning that you cannot stop someone from accessing the good and someone cannot chose not to access the good.
  A good example of a public good is streetlights as you cannot prevent someone using the street light nor does their use prevent someone else seeing the light. There are very few examples of pure public goods, which are non-rivalry and non-excludable.

Question 2

Why public goods may not be provided by the private sector: the free rider problem

Answer 2

• This says that you ​cannot charge an individual a price for the provision of a non-excludable good because someone else will gain the benefit from it without paying anything. A ​free rider is someone who receives the benefits without paying for it.
• Private sector producers will not provide public goods to people because they ​cannot be sure of making a profit​, due to the non-excludability of public goods. Therefore, if the provision of public goods was left to the market mechanism, the market would fail and so they are ​provided by the government​ and financed through taxation.