What is a 'Private Good'

A private good is a product that must be purchased to be consumed, and its consumption by one individual prevents another individual from consuming it. Economists refer to private goods as rivalrous and excludable. A good is considered to be a private good if there is competition between individuals to obtain the good and if consuming the good prevents someone else from consuming it.

BREAKING DOWN 'Private Good'

A private good is the opposite of a public good. Examples of private goods include food, airplane rides and cellphones. Private goods are less likely to experience the free rider problem because a private good has to be purchased; it is not readily available for free. A company's goal in producing a private good is to make a profit. Without the incentive created by revenue, a company is unlikely to want to produce the good.

A private good is any item that can only be used, or consumed, by one party at a time. Many tangible home goods qualify, as they can only be used by those with access to them. Any item that is effectively destroyed or rendered unusable for its original purpose through use, such as food and toilet paper, are also private goods.

Often, private goods have finite availability, making it excludable in nature. For example, only a certain number of a certain pair of designer shoes is produced, so not everyone can have those shoes. Not only is a single pair seen as a private good, but the entire product line can be included.

Private Goods and Cost

The majority of private goods must be purchased for a cost. This cost offsets the fact that the use of the good by one prevents the use of the good by another. Purchasing the item secures the right to consume it.

Public Goods

Public goods are generally open for all to use and cannot be consumed by one party to the detriment of another party's ability to also use it. It is also not excludable; preventing the use of the good by another is not possible. Many public goods can be consumed at no cost.

Water fountains in public places would qualify as public goods, since they can be used by anyone and there is no reasonable possibility of it becoming fully used up. Public television received over the air and standard AM or FM local radio also qualify, as any number of people can watch of listen to the broadcast without affecting other people's ability to do so.

RELATED TERMS
  1. Consumer Goods

    Products that are purchased for consumption by the average consumer. ...
  2. Private Brand

    A private brand is a good that is manufactured for and sold under ...
  3. Privatization

    1. The transfer of ownership of property or businesses from a ...
  4. Private Equity

    Private Equity is a non-publicly traded source of capital from ...
  5. Going Private

    Going private is a transaction or a series of transactions that ...
  6. Private Investment Fund

    A private investment fund is a fund that is not open to regular ...
Related Articles
  1. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  2. Financial Advisor

    Should My Portfolio Include Private Equity?

    Private equity offers a lot of potential, but is it worth the risk?
  3. Investing

    How to Invest in Private Equity

    Private equity might be a pricey investment, but the payoff could be big. Here's why and where you should invest in private equity.
  4. Investing

    Grasp the Accounting of Private Equity Funds

    Read about private equity accounting and how it is different than that of other investment vehicles. The nature of private equity makes a difference.
  5. Investing

    Big Money In Private Labels

    The growth of private label and store brands represents an interesting opportunity for investors.
  6. Insights

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  7. Tech

    Concerns About China’s Private Equity Market: Implications for Global Alternative Investment Industry ...

    With the current economic trend in China, it is difficult to not worry that many investors may be pouring into a failing market.
  8. Insights

    Should Public College Be Free?

    Bernie Sanders wants Wall Street to pay for public college tuition. What's the deal?
  9. Financial Advisor

    How Private Equity Dividends Work

    Everything you didn't know about private equity dividends.
RELATED FAQS
  1. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  2. How does revolving credit differ from a general line of credit?

    Examine the consumer goods sector, which accounts for nearly one-third of consumer spending, and learn which goods account ... Read Answer >>
  3. What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center