Public Good

What is a Public Good

A public good is a product that one individual can consume without reducing its availability
to another individual, and from which no one is excluded. Economistsrefer to public goods
as "nonrivalrous" and "nonexcludable." National defense, sewer systems, public parks and
other basic societal goods can all be considered public goods.
BREAKING DOWN Public Good
A public good is an item consumed by society as a whole and not necessarily by an
individual consumer. Public goods are financed by tax revenues. All public goods must be
consumed without reducing the availability of the good to others, and cannot be withheld
from people who do not directly pay for them. Law enforcement is also an example of a
public good.
While public goods are important for a functioning society, there is an issue that arises
when these goods are provided, called the free-rider problem. This problem arises because
a rational person will not contribute to the provision of a public good since he or she does
not need to contribute to benefit. For example, if a person does not pay his taxes, he still
benefits from the government's provision of national defense by free riding on the tax
payments of his fellow citizens.
Characteristics of Public Goods
Almost all public goods are considered to be nonrivalrous and nonexcludable goods.
Nonrivalry denotes any product or service that does not reduce in availability as people
consume it. Nonexcludability refers to any product or service that is impossible to provide
without it being available for many people to enjoy. Therefore, a public good must be
available for everyone and not be limited in quantity. A dam is another example of a public
good. It is nonrivalrous and nonexcludable because all people within a society benefit from
its use without reducing the availability of its intended function.
However, in some cases, a public good can be excludable and a private good can be
nonexcludable. A public good is considered excludable when it has a nominal cost that
creates a low barrier to consuming the good. The post office, for example, is an excludable
public good because even though the service is provided for the public, there are low costs
such as stamp expenses that prevent people who have not paid from using it. Private goods
such as a basic AM radio show are considered nonexcludable since anyone with a radio can
consume them.
Reviewed by Kenton, W. (2018, June 24). Public Good. Retrieved from
https://www.investopedia.com/terms/p/public-good.asp