A) Non-rivalry and non-excludability

Non-rival

A good is non-rival when one person’s consumption does not reduce the amount of benefit available to somebody else.

For example, somebody standing underneath a streetlight does not reduce the benefit received by another person standing under the same light.

Non-excludable

A good is non-excludable when it is difficult or impossible to prevent particular people from receiving its benefits.

For example, the armed services cannot simply refuse to protect an individual because that person has not personally paid towards the cost of national defence.

B) Public and private goods

Private goods are generally rival and excludable. A business can prevent somebody from consuming the good if they do not pay for it, while one person’s consumption may reduce the amount available to somebody else.

Public goods are different because they are non-rival and non-excludable.

Flood defences are an example of a public good. Protecting one household from flooding does not normally reduce the protection received by other households in the area, while it would be difficult to exclude individual households from the protection.

C) The free-rider problem

The free-rider problem occurs when people can receive the benefits of a good or service without paying towards its cost.

If consumers know that they can receive the benefit without paying, they have little incentive to purchase the good voluntarily. This makes it difficult for a private firm to make a profit from providing many public goods.

As a result, public goods may be underprovided or not provided at all by the free market. Government intervention may therefore be needed to ensure that they are supplied.

What the full guide adds

For this topic, the full AS guide also covers:

• More detailed comparisons between public and private goods, including worked examples using buses and cars.
• A fuller explanation of flood defences and why their characteristics make private provision difficult.
• Quasi-public goods which have some characteristics of both public and private goods.
• The example of roads, including how road tolls can make them partly excludable and how congestion or wear can give them rival characteristics.
• A fuller explanation of the free-rider problem and why it can prevent profit-maximising firms from providing public goods.
• The link between public goods, positive externalities and government intervention.