PUBLIC GOODS
Private goods: goods which are scarce and can be sold in a free market.
They have the characteristics of being:
rival: consumption by one person reduces the amount
available for others to consume
excludable: consumers can be prevented from gaining access to the product
As a result, the products can be scarce, have value and can be sold in the market.
There is a type of good, though, which will not be provided in a free market. These are called public goods, and have two important characteristics:
non excludable: if one person consumes the good, it will
not reduce the amount ofr consumption by others
non excludable: if the good is provided, others cannot be excluded from
consuming the good
Examples: defence, street lighting, light houses; law and order
If it is difficult to exclude others from consuming the good once it is bought, a free rider problem will develop. Why should someone pay for the good, if they can get it free with others paying? If all consumers adopt that attitude, no one will buy the good and it will not be provided because producers are unable to earn any income form its provision. These goods have essential positive externalities, and as a result, economic welfare will not be maximised.
Government provision is needed to provide these goods.