1.3.3 Public goods

• Private goods

  Private goods are characterized by two key features: rivalry and excludability.

  
  

  Rivalry: Consumption by one individual reduces the availability of the good for others.

  
  

  Excludability: Producers or sellers can prevent individuals from consuming the good if they do not pay for it.
• Public goods

  Public goods are characterized by three key features: non-rivalry, non-excludability and non-rejectability

  
  

  Non-Rivalry: Consumption by one individual does not reduce the availability of the good for others; it is "non-depletable."

  
  

  Non-Excludability: It is difficult or costly to prevent individuals from benefiting from the good, regardless of whether they pay for it

  
  

  Non-rejectability: Difficult/impossible to avoid/opt out from the benefits of a public good e.g Natural defence
• Why Public Goods May Not Be Provided by the Private Sector: The Free Rider Problem

  The free rider problem occurs when individuals can benefit from a public good without having to pay for it.

  
  

  Since it is difficult to exclude non-payers, individuals may choose not to pay for the good, assuming that others will pay and they can still enjoy the benefits.

  
  

  This leads to underfunding or underproduction of public goods in the private market.
• The Role of Government

  Governments often intervene to provide public goods because they are unlikely to be adequately supplied by the private sector.

  
  

  Governments can finance public goods through taxation, ensuring that everyone pays their fair share.
• Quasi-Public Goods

  Some goods exhibit characteristics of both public and private goods.

  
  

  These are referred to as quasi-public goods.

  
  

  They may have elements of non-rivalry or non-excludability but not to the same extent as pure public goods.