Public goods

Non rival -The consumption of a good/service by another individual does not reduce the amount of benefit derived from that good/service to other people. For example a person that is standing by a streetlight does not lose benefit from that street light if another person stands in the light also.


Non excludable -The benefit derived from the good/service is unable to be excluded from certain individuals. For example, the armed services cannot refuse to protect certain individuals who do not pay their taxes. Therefore, these individuals gain as much benefit from the armed services as those who do pay taxes.


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

Private goods are rival and excludable. For example, in order for a consumer to ride the bus they must pay for the ticket before they enter the bus. This makes the bus excludable to those who have not bought a ticket, meaning firms can make a profit in the transportation market. Furthermore, there are only so many spaces on a bus; this means that one person’s consumption of the good can stop other people from receiving benefit from that same good/using its services. This makes the good private. If there is enough demand for bus services in the free market, then it will be supplied by firms up to the point of equilibrium. Another example of a private good is a car. The law prevents individuals from driving other people’s cars without their permission. Furthermore, car owners are able to lock their car thus excluding its benefit from other people. These two characteristics make cars excludable to others. In addition to this, once a person buys a car it stops other people from buying that same car unless the owner decides to sell it. As a result of this, cars are also rival goods. These two factors make cars private goods.

In contrast to private goods, public goods are both non excludable and non-rival. Flood defences are a good example of a public good. Flood defences are provided by the government as rational firms will not provide them in the free market. The benefit derived from flood defences cannot be excluded to one person or a group of individuals thus making the good non excludable. This is because flood defences stop flooding in the whole area, not just individual houses. Furthermore, one person benefiting from local flood defences does not reduce the amount of benefit derived by the flood defences from other residents in the local area. These two characteristics make flood defences a public good, therefore they are provided by the government rather than the free market.

In addition to private and public goods, there are also Quasi-public good. These are goods which have characteristics of both public and private goods. For example, it can be argued that roads share some private good characteristics such as road tolls. These can exclude certain stretches of road to consumers who do not pay a fee to cross. This can make some roads excludable. Furthermore, roads can diminish over time with excessive use damaging roads and creating potholes.

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