Public vs private goods: What are the differences?

The main differences between public vs private goods are, private goods are excludable and rivalrous while public goods are non-rivalrous and non-excludable.

What are the public goods and private goods?

Let’s briefly discuss what the public goods and private goods are

Public goods

According to economists, a public good means a good or service which is available to all the members in a society. Almost the government makes public goods and every society member benefits from the public goods. The government spends tax funds to generate public goods. As examples for the public goods, we can say national defense, law enforcement, and so on.

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Private goods

The private goods are purchased for the benefit of the consumer to maximize his or her utility. When a person consumes private goods, he or she pays a price for that and reduces or violates the ability to use those goods by another party. As usual, when a good or service is private, there is competition to acquire and to use it among the consumers. Also, consumption can be controlled by the owner of the private good.

Most of the tangible domestic goods such as automobiles can be categorized as private goods. Because if these goods are purchased by a particular consumer, he or she can consume it. In other words, a consumer can purchase a private good, after compensating to the manufacturer who has produced a private good. So, accessibility for a private good is restricted by the price of that good.

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Private goods and public goods can be considered as two extremes which have opposite characteristics. So, the differences between private goods and public goods can be discussed as follows.

Public vs private goods

What are the differences between public goods and private goods?

Public vs private goods: Private goods are excludable while public goods are non-excludable.

Business organizations can exclude the people who cannot pay the price when providing private goods. But this cannot be applicable for the public goods. 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. But private defense from that situation. Because, if people want private security and have purchasing power, they can purchase private security from the security firms.

Public vs private goods: Private goods are rivalrous while public goods are non-rivalrous

Public goods cannot be consumed 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. 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.

When compare private defense with public defense, it can be stated that people can individually consume the private defense. Also, when we think about private goods such as automobiles, they can be consumed by individual groups of people or an individual person. If one person consumes an automobile, it will decrease the opportunity of other people. So, there is a rivalry. People have to sacrifice more resources by not fulfilling their other requirements to buy private goods and it does not like the public defense of a nation.

Public vs private goods: Almost government provides the public goods while private sector provide the private goods.

There are two major reasons for that. First one is, private sector do not interest to provide public goods since they cannot earn a profit by providing a public good. Best example is the national deference. But private sector can earn a profit by providing private goods such as automobiles. Second reason is that, if private sector is appointed to provide public goods, they try to maximize their profit. As examples, if private sector provides the national defense they provide more security on the areas and persons which generate higher profit not the areas and people that need more security. The government of Malaysia has spent 1.1 percent of the Gross Domestic Product as defense expenditure for the year 2020.

Common resources vs public goods

Common resources are not excludable and rival in consumption. Although a person has not paid for the common resource, he or she can consume the common resources (non-excludable). If one person consumes common resources, another person cannot consume them (rivalrous).

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).

So, main difference between common resources and public goods is, common resources are rivalrous while public goods are non-rivalrous.

What are the four types of goods in economics?

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 four types of goods in economics are categorized based on two major characteristics. They are excludability and rivalry in consumption.

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 goods in economics based on their major characteristics.

Public vs private goods: What are the differences?