What: Public goods (public goods) is the stuff that when you use does not reduce its availability for others. And, you also cannot prevent others from using and benefiting from them. Examples of public goods include clean air, national defense, street lights, flood control systems, lighthouses, and justice.
Governments usually provide public goods. The private sector is reluctant to supply it because it is not profitable. Businesses find it difficult to collect revenue from consumers. However, some individuals or voluntary organizations can also provide it, but on a limited scale.
Characteristics of public goods
The government provides public goods for welfare or provides benefits to all citizens. They are generally available and are not intended for specific groups of people. When an individual uses it, it doesn’t stop others from getting the same benefits.
The two main characteristics of public goods are:
- Nonrivalitas (nonrivalrous)
When you use a public good, it doesn’t limit its availability to others. Even though we have different tastes, we get the same benefits. Take the case of a street lamp. You and others alike receive the benefits of the road when driving on the highway.
It may be a little different for highways and expressways. When the highway is full, it reduces the benefits available to others. Meanwhile, for toll roads, you have to pay to be able to use them. But, when you use a toll road, you cannot prevent others from using it.
When governments have made public goods available, they are available to everyone. You cannot prevent others from using and benefiting from the item.
Thus, public goods are available to everyone, both payers and non-payers. That then gives rise to free riders , where they can consume and derive benefits without paying for them. An example is a highway. Both taxpayers and non-taxpayers benefit.
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 be penalized 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 make a separation box between your own clean air and that of your neighbors.
Street lights. Both motorists and local residents benefit from the streetlights. Residents may pay a fee to buy and provide these lamps. Likewise, car or motorbike riders who pass through the road can enjoy it without having to pay a fee.
Radio or television network. Once a radio or television signal is broadcast, everyone can access it. It’s hard to stop someone from accepting it. Besides, when you listen to the radio or watch television, it doesn’t prevent other people from using it either.
Difference between public goods, club goods, public goods and private goods
Economists divide goods into four categories based on rivalrous and excludability variables .
|Rivalrous||Personal goods (private goods)||general goods|
|Nonrivalrous||Goods club (club goods)||Public goods (public goods)|
Personal goods (private goods) are excludable and rivalrous. They include items you use on a daily basis such as clothes and food. When you buy and use a piece of clothing, your clothes are no longer available to others. It’s yours and you have the right to prevent others from using it.
To enjoy private goods, we must compete and pay for them. For this reason, private goods are less likely to face free passenger problems than public goods.
When you use common goods , it reduces its availability to others. However, you cannot prevent others from using it.
Examples usually cited are timber, mineral resources and fish in international waters. Because it is 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 ultimately leads to exploitative behavior and gives rise to 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 can’t prevent them. Knowing the supply of wood is dwindling, more and more people are cutting wood. If there are no regulations (eg from the government), it causes the wood resources to run out.
Goods club (club goods) are the types of goods are nonrivalrous and excludable. If you use them, they are still available to others. But, to get the benefits, the supplier can exclude some people from using it. Suppliers can charge prices so that goods are only available to people who are willing to pay.
Examples of club goods are cable TV, cinema and private gardens. You and your friends can both enjoy it without reducing each other’s benefits. Of course, you and your friends have to pay.
Pseudo public goods
Quasi public goods (quasi public goods) is a mixture between public goods and private goods. Examples are highways, toll roads and tunnels.
A pseudo-public good has the following two characteristics:
- Semi-non-rival (semi-non-rival). To some extent, the use of goods does not reduce their 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, is to fence the garden or charge an entrance fee.
Take the highway for example. Most people get the benefits of the highway and they cannot prevent others from getting the same benefits. But, the benefits diminish as more people use as it will increase congestion. In addition, to get benefits, you must also have a vehicle and a driver’s license or pay for public transportation.
Another example of a common item 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 get the same benefits.
However, at some point, the benefits diminish as more and more people use it. If the park is full, it certainly reduces the space available for others.
Public goods and market failure
Public goods are examples of market failures in addition to monopolies, externalities, and information asymmetry.
The private sector is not willing to provide public goods purely because it is not profitable. When a business supplies, some people can use it without paying and they can’t prevent it. The free rider’s problem eventually led to a lack of supply of goods.
As a result, the costs of providing the 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. Although unprofitable business, public goods create greater social benefits.