Public and private goods

• Public goods are missing from the free market, but they offer benefits to society.
• Public goods are:


  Non-excludable and non-rival
• The non-excludable nature of public goods gives rise to:

  The free-rider problem
• Free-rider problem


  People who don't pay for the good still receive benefits from it, in the same way people who pay for the good do.
• The free-rider problem is why public goods are underprovided by the private sector: they do not make a profit from providing the good since consumers do not see a reason to pay for the good, if they still receive the benefit without paying.
• Public goods are hard to put a price on.
• Governments provide public goods.
• Public goods are funded by tax revenue, but the quantity provided will be less than the socially optimum quantity.
• Private goods are:


  Rival and excludable
• Private goods have private property rights which can be used to prevent others from consuming the good.
• Quasi public goods 


  Have characteristics of both public and private goods.
• Technological change can be significant; a public good can be turned into a private good. 


  E.g. TV broadcasting now excludable with subscriptions
• The tragedy of the commons 


  How individuals prioritise personal gain over the well-being of society.
• The unlimited use of public goods leads to negative externalities (e.g. common access = air pollution). This is a market failure that results from common access.
• tragedy of commons


  market failure caused by common access of goods and services resulting in negative externalities. occurs because individuals prioritize personal gain