1.3.3 Public goods – Edexcel A Economics A Level notes

Contents

What are public goods?

  • Public goods are goods that are non-rivalrous and non-excludable.
    • Non-excludability: Nobody can be prevented from accessing the good (without paying).
    • Non-rivalry: One consumer consuming the good does not reduce the amount available for others to consume. 

Examples of public goods include:

  • Streetlights
    • Streetlights are non-excludable. You cannot prevent someone from walking past the streetlight and benefitting from its light.
    • Streetlights are non-rivalrous. One person walking underneath the streetlight does not reduce the amount of light available for others.
  • Flood defences
    • Flood defences include use of walls or changes to landscapes to reduce of flooding.
    • You cannot prevent someone living in a town with flood defences from benefitting from those defences. So flood defences are non-excludable.
    • For those within a city at risk of flooding, if one person makes use of the flood defences, this does not reduce the amount of flood defences for other town members to consume. So flood defences are non-rivalrous.
  • Other examples of public goods include information (such as official statistics or TV / radio news), firework displays and clean air.

In contrast, a private good is both excludable and rivalrous.

  • For example, a chocolate bar is excludable. You can prevent people from accessing chocolate by making people pay for it in supermarkets.
  • Chocolate bars are also rivalrous. If someone consumes part of your chocolate bar, there is less available for you to consume.

Quasi-public goods satisfy one property of public goods but not the other.

  • Some goods are rivalrous but non-excludable. Examples are fish stocks and timber.
  • Other goods are excludable but non-rivalrous. Examples include private parks and private beaches.
  • Parks can satisfy both conditions for a public good but can also violate them:
    • If some parks could get very busy and lead to overcrowding on particular days. Rivalrous.
    • Also, park access could be cut off to the public in some circumstances. E.g. National Trust – may have to pay fees to enter.

Free-rider problem

There is a market failure in public goods because of the free-rider problem:

  • “Free rider problem” – free riders can always consume the good because of non-excludability.
  • No consumer is willing to pay, as they are relying on others to pay.
  • So firms cannot generate revenue from producing the good. So firms do not supply the good at all.
  • As a result, there is “complete market failure“. This means zero provision of the good in the free market.

This implies that public goods may need to be provided by the government.

A common misconception on public goods

Note, however, that not all goods provided by the government are public goods.

For example, healthcare and education are not public goods.

Healthcare, for instance, is rivalrous. One patient using healthcare may reduce the number of beds available for others to use. So healthcare is not a public good.

So, the definition of a public good is one that is both non-rivalrous and non-excludable. The definition does not relate to whether the government provides a good.

Evaluation points for public goods

1) The non-excludability and non-rivalry properties of some goods may not always apply.

  • For examples beaches and parks can become overcrowded, violating non-rivalry.
  • Private beaches do exist, which are excludable.
  • Roads can satisfy the qualities of public goods. However some roads are toll roads – there are fees to pay for using the road, enforced using barriers.

2) The non-excludability property of public goods may change over time due to technological progress.

  • While online news could satisfy the criteria to be a public good, the development of paywalls / subscriptions allows newspapers to make money from their online offerings.
  • TV programs could also meet the criteria for a public good. However the ability to track individual TV users allows the creation of subscription-only channels, making TV excludable.

3) There may not be complete market failure for public goods.

  • There are example of charities providing public goods through donations.
  • Alternatively, public goods can be funded through advertising revenues, such as TV channels having advertising breaks.

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Tom Furber

Helping economics students online since 2015. Previously an economist, I now provide economics resources on tfurber.com and tutor A Level Economics students. Read more about me here.