Public Goods

• A public good is non-rivalrous, meaning that the consumption of the good by one person does not reduce the quantity available for others to consume and benefit from.
• A public good is non-excludable, meaning that the producers of the good is unable to, or find it hard to exclude any potential customer from enjoying the benefits of the good once it is produced.
• A public good is non-rejectable, meaning that customers are unable to refuse the consumption of the good once it has been produced.
• Left to the free market, public goods will not be provided, ergo, there will be a missing market.
• Due to the characteristics of public goods, the ability for consumers to free-ride other consumers arises.
• The free-ridership problem highlights the fact that non-payers are able to continue to free-ride on payers because the quantity available for others to consume and benefit from does not diminish.
• Due to the free-ridership problem, potential consumers would wait for someone else to pay for it and hope to benefit from the good without having to pay for it, as a result, there is no expression of demand for the good even if consumers are satisfied with the good.
• As there is no expression of demand for the good, rational firms would not enter the market to supply the good, resulting in a missing market and eventually, total market failure.
• Free-riding prevents consumers from sending a price signal which reflects their own satisfaction towards the good to firms, which leads to firms abstaining from the market than to otherwise supply the good.
• As public goods are non-rivalrous, the marginal cost to the society of supplying the good to another user is zero, hence the allocative efficient price to charge can only be zero and cannot be a positive price.