Public goods are non-excludable and non-rival in consumption. Best public goods examples are national defense, local law enforcement, and roads.

What are the four types of economic goods?

There are 4 types of economic goods. They are

1. Private goods

2. Club goods

3. Common goods or common resources

4. Public goods.

These economic goods are categorized based on two major characteristics. They are excludability and rivalry in consumption.

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Common resources characteristics, examples, & vs public goods

Private goods definition, characteristics, examples

Public vs private goods: What are the differences?

Public goods characteristics, examples, graph, types, and issues

Excludability

Excludability means, the ability to remove the people who haven’t paid for the particular good from using it. In other words, if a person has not paid the price of the good or service, he or she cannot consume it. For consumption, a price must be paid. 

Rivalry

The second characteristic is rivalry in consumption. It means there is competition for the consumption of a particular good. In other words, if one person consumes a particular good, another person cannot consume it. There is a marginal cost of using the goods. For one person’s consumption other person has to sacrifice the consumption.

Let’s, consider about four types of economic goods based on their major characteristics.

There are 4 types of economic goods. They are private goods, club goods, common resources and public goods. To read more about them, kindly click here.

What are public goods?

Public goods are not excludable and not rival in consumption. Although a person has not paid for public goods, he or she can consume the public goods (non-excludable). Consumption of a public good by a particular person does not limit the consumption of that good by another person (non-rivalrous).

What are the 5 characteristics of public goods?

1. Public goods are not excludable in consumption

Although a person has not paid for public goods, he or she can consume the public goods (non-excludable). As examples, although people pay or not pay the taxes, government cannot exclude them when providing the national difference. Also, if a person does not like to get national defense, he or she cannot reject that service.

2. Public goods are not rival in consumption.

Consumption of a public good by a particular person does not limit the consumption of that good by another person (non-rivalrous). As an example, when national defense is provided, it prevails for the entire nation. Not only for a specific group of people. There is a higher unconstrained large supply for the public defense. So, providing national defense to one person does not reduce the national defense of other people. That means there is no rivalry.

3. Usually the government provide public goods

As an example, providing national defense services such as police and army, the private sector cannot earn a profit. The second reason is, at mostly public goods are considered essential goods and services in the economy. So, the supply of public goods cannot be fulfilled by the private sector since they focus on profit maximization. As an example, if private provides the defense to the nation, they mostly focus on people and areas that can pay a higher price, not on the people and areas that need more security. So, we can prove that appointment of the private sector to provide public goods is useless. Only the government can do it. The government of Malaysia has spent 1 percent of the Gross Domestic Product as defense expenditure for the year 2019. (Malaysia Military expenditure as a share of GDP, 1949-2019 – knoema.com, n.d.).

4. Public goods should consume as groups

Public goods cannot consume individually. They should be consumed as groups. As an example, when national defense is provided, it prevails for the entire nation. Not only for a specific group of people. On the other hand, anyone in the nation cannot reject it. For example, we cannot reject the verification of our identity, security has provided in public places, and so on. Also, if we don’t have special requirements, we cannot get special security than others. So, all of the people in the society have to consume the national defense as a group. When compare private defense with public defense, it can be stated that people can individually consume the private defense. If we want private defense, we can pay for it and consume. If we want not, we can avoid paying it and don’t get the service. Also, if we want more private defense, we can pay more and get more service. Because private defense is a private good while the public defense is a public good.

5. Public goods have an unconstrained large supply

This means there is a higher capacity to supply public goods. As an example, for the public defense, there is a higher potential capacity. There is a higher number of officers in the defense academies such as the army and police. Also, there is a larger number of weapons and other equipment, a larger number of police stations, army camps, and so on. So, there is a higher unconstrained large supply for the public defense. There is less opportunity cost for increasing the public defense to an additional person. But when we concern about the private defense, there is a higher opportunity cost for increasing it. People have to sacrifice more resources by not fulfilling their other requirements and it does not like the public defense of a nation.

Public goods examples

Following are some public goods examples

National defense

Local law enforcement

Public schools

Public libraries

Educational community events

Roads

Bridges

Street lighting fixtures

Sidewalks

Crosswalks

Public goods graph

Assume that above graph shows the market equilibrium for the national defense (national defense is one of the best public goods examples).

What is the demand curve for a public good?

The above aggregate demand for the national defense is shown in the D curve. This is also defined as the marginal benefit (MB) curve. The marginal benefit curve shows the maximum amount of money that customers willing to pay when they are going to buy an additional unit from a particular good or a service. The curve of aggregate demand for the national defense can be derived from vertically summarizing each individual’s demand curve for the national defense.

What is the supply curve for a public good?

The aggregate supply for the national defense is shown in the S curve. This is also defined as the marginal cost (MC) curve. The marginal cost curve presents an additional cost that producers have to bear when they produce an additional unit from a particular good or a service.

Market equilibrium for the national defense is shown in point E1. This equilibrium presents the optimum amount of the national defense that society required. In equilibrium, the marginal benefit equals marginal cost. Market equilibrium for the national defense market is derived through the cost-benefit analysis process. So according to the above graph, the optimum amount of national defense that is required by the society is presented in Q1 which relates to the market equilibrium of E1.

What are pure public goods and quasi-public goods?

There are two major types of public goods. They are,

1. Pure public goods
2. Quasi-public goods

It is very important to identify the difference between pure public goods and quasi-public goods.

Difference between pure public goods and quasi-public goods.

Pure public goods

When we concern about pure public goods, we can see several important facts.

There is no excludability of pure public goods: If one person pays for the public goods, most of the time he or she can not solely enjoy the benefits of public goods. In other words, people who did not pay for the goods or services are also able to benefit from it. So, there is no excludability of pure public goods. For pure public goods examples, we can say the national defense and local law enforcement. Not only the people who have paid for the national defense but also other peoples in the society also enjoy the benefits of the national defense.

Pure public goods are non-rival products: The second one is enjoying the benefit of the pure public good by a one-person not sacrifices the second person’s benefit. So pure public goods are non-rival products. Providing national defense to one person in society does not sacrifice national defense for other people in society.

Pure public goods are non-rejectable. Although we do not like a pure public good, we cannot reject it. As an example, although a person feels that he does not need national defense, he cannot reject it. He must consume this service.

Quasi-public goods

When we concern about the quasi-public goods, here also we can see several important facts.

Quasi-public goods are semi non-excludable goods: This means, sometimes consumers have to bear some cost to use quasi-public goods. As an example, to use the highway facility, sometimes customers have to pay the highway entrance fee. So, highway facilities can be considered as a quasi-public good.

Quasi-public goods are semi non-rival goods: This means, there is no competition for the usage of the quasi-public goods up to a certain level. After this certain level, there is a competition to use it. In other words, after reaching full capacity consumption of a quasi-public good by a person, can sacrifice the consumption of another person. As an example, driving a vehicle on a highway does not deprive the opportunity to drive another vehicle on the highway. But if there is traffic on the highway, competition for consumption begins.

What are the disadvantages of public goods?

1. Free-rider problem.

The free-rider problem has occurred when people use more resources than their fair share without paying or paying a smaller portion of the money. When there is a free-rider problem, there is an inefficient distribution of goods and services. In public goods also there is a free-rider problem. Because we know that not only the people who pay for the public good, but also people who don’t pay for the public good can consume the public good. One of the best public goods examples is national defense. Some people give their contribution to the defense system of a nation by paying taxes. So, they have paid the price and consume the service. But some people haven’t given any contribution and they also consume the benefits of the defense system. Because of these people, people who pay for the defense service in other words taxpayers can be demotivated. So, the government should get actions to motivate the taxpayers such as explaining the benefits of the national defense. Also, the government should implement a fair price toward the free riders by aligning with the benefit that they are enjoying.

2. There are positive externalities of a public good. 

Positive externalities are generated when a third party gets benefits from the production or consumption of a good. Positive externalities show that producers supply the amount of good less than the socially required amount.  So, there is a market failure in public goods. Because most of the time government does not provide the equilibrium amount of the particular good. Government fails to fulfill the optimum welfare of society. For example, the government provides the amount of national defense with a shortage when compare with the social requirement. So, we can see there is a market failure and the government should take necessary actions to increase the supply of public defense. We can suggest to the government to increase the number of police and army officers in the forces and straighten the national intelligence service as options to increase the supply of the national defense service.

3. Practical inability to determine where is the output level maximizes the social benefit.

According to our example, the government doesn’t know how much defense society requires. As mentioned above, the government supplies a public good with a shortage. So, the government should find that where is the equilibrium output of defense that maximize social wellbeing. For that government can do scientific research by getting sample people of the society.

4. It is difficult to calculate the number of required public goods.

As public goods examples, we know that we cannot calculate the amount of national defense numerically. Because it is a service. In other words, national defense is a qualitative variable. So, we cannot measure the amount of national defense as one, two, or three. Then the government is in another problem again. For that government can measure public defense by using quantitative measurements. The government can make a questionnaire by including questions that measure the national defense numerically. Then they can distribute it to people in the nation and people will fill the survey according to their knowledge and experience. The government can shortlist and analyze these questionnaires and then get the required amount of defense.