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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. Economists refer 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.

Characteristics of Quasi-Public Goods

Quasi-public goods are goods and services that have characteristics of being nonrivalrous and nonexcludable, but are not pure public goods. Roads are a good example of a quasi-public good. All infrastructure is built for the benefit of the public, but as more of the public uses the infrastructure, it creates traffic and congestion, lowering the value of the good.

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