What’s it: Public goods are goods that do not reduce their availability to others when you use them. And, you also cannot prevent others from using and benefiting from them. Examples of public goods are street lamps, national defense, clean air, flood control systems, lighthouses, and the judiciary.
The government usually provides public goods. The private sector is reluctant to supply it because it is unprofitable. Businesses find it challenging to collect income from consumers. However, some voluntary individuals or organizations might provide them, but on a limited scale.
Characteristics of public goods
The government provides public goods for welfare or provides benefits to all citizens. They are publicly available and are not explicitly intended for certain groups of people. When an individual uses it, it doesn’t stop others from reaping the same benefits.
The two main characteristics of public goods are:
When you use public goods, it doesn’t limit its availability to other people. Even though we have different tastes, we get the same benefits. Take the case of a street light. You and others both benefit from the road when driving on the highway.
It may vary slightly for motorways and motorways. When the road is full, it reduces the benefits available to others. Meanwhile, for toll roads, you have to pay to use them. However, when you use a toll road, you cannot prevent others from using it.
When the government has made public goods available, they are available to everyone. You cannot prevent others from using and benefiting from these items.
Thus, the public good is for payers and nonpayers. It then gives rise to free-riders, where they can consume and benefit without paying for it. An example is a highway, which benefits both taxpayers and non-taxpayers.
Examples of public goods
National defense and security. The government provides protection to all citizens. If you commit a traffic violation, you cannot stop the police from punishing you, even if you pay taxes. Likewise, those who do not pay taxes will also receive the same sanctions for doing the same thing.
Clean air. Clean air is available everywhere. You and your neighbors both enjoy it. And, of course, you will not create a dividing box between your clean air and your neighbor’s house.
Street lights. Both motorists and local residents benefit from street lights. Residents may have a fee to buy and provide these lamps. Likewise, drivers of cars or motorbikes passing through these roads can enjoy it without paying dues.
Radio or television network. Once a radio or television signal is broadcast, everyone can access it. It’s hard to stop someone from using it. Besides, it doesn’t prevent other people from using it when you listen to the radio or watch television.
Difference between public goods, club goods, general goods, and private goods
Economists divide goods into four categories based on the rivalrous and excludability variables.
|Rivalrous||Private goods||Common goods|
|Nonrivalrous||Club goods||Public goods|
Private goods are excludable and rivalrous. They include items that you use every day, such as clothing and food. When buying and wearing clothes, your clothes are no longer available to others. It belongs to you, and you have the right to prohibit others from using it.
To enjoy private goods, we have to compete and pay for it. Hence, they are less likely to encounter free-rider issues than public goods.
When you use common goods, it reduces availability to others. However, you cannot prevent others from using it.
Typically cited examples are timber, mineral resources, and fish in international waters. Because they are rivalrous, people will compete to take advantage of common goods. At the same time, they cannot prevent others from doing so. As a result, it eventually leads to exploitative behavior. It gives rise to the phenomenon of the tragedy of the commons.
Take wood, for example. When you cut wood in the forest, other people will follow you. And, of course, you cannot prevent them. Knowing that the supply of wood was shrinking, more and more people were cutting wood. If there are no regulations (for example, from the government), it causes the timber resource to run out.
Club goods are nonrivalrous and excludable types of goods. If you do use them, they are still available to others. But, to reap the benefits, the supplier may exclude some people from using it. Suppliers can charge prices so that goods are only available to people willing to pay.
Examples of club items are cable TV, cinemas, and private parks. You and your friends can enjoy them together without reducing the benefits of each other. Of course, you and your friends have to pay.
Quasi-public goods are a mixture of public goods and private goods. Examples are highways, toll roads, and tunnels.
Quasi-public goods have the following two characteristics:
- Semi-non-rival. To some extent, the use of goods does not reduce availability to others. However, as the number of users increases, their availability to others decreases.
- Semi-non-excludable. Indeed, the supplier may exclude others from using the goods. But, it may be difficult or expensive to do so. For example, fencing the garden or charging an entrance fee.
Take the highway. Most people benefit from it, and they cannot prevent others from getting the same benefits. But, the benefits diminish as more people use them because it increases congestion. Also, to get benefits, you must have a vehicle and a driver’s license or pay for public transportation.
Another example of quasi-public goods is a public park. When you play with your family in a public park, you cannot prevent other families from playing in the same location. You and they both benefit the same.
However, at some point, the benefits diminish the more people use it. If the garden is full, it will reduce the space available to others.
Public goods and market failures
Public goods are examples of market failures other than monopolies, externalities, and information asymmetry.
The private sector is unwilling to provide purely public goods because it is unprofitable. When a business supplies, few people can use it without paying, and they can’t prevent it. The problem of free riders ultimately causes a lack of supply of goods.
The costs of providing public goods outweigh the profits. The private sector has no incentive to supply such goods. As a result, the market will fail to provide enough of the goods or services needed.
Since the private sector does not want to provide goods, the government must step in. Even though they are not for profit, public goods create more significant social benefits.