Loading the player...

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.

RELATED TERMS
  1. Private Good

    A product that must be purchased in order to be consumed, and ...
  2. Consumer Goods

    Products that are purchased for consumption by the average consumer. ...
  3. Public Company

    A public company issues securities through an initial public ...
  4. Rival Good

    A rival good is a type of product or service that can only be ...
  5. IRS Publication 17

    IRS Publication 17 is a document published by the Internal Revenue ...
  6. Forced Initial Public Offering

    A forced initial public offering is an instance in which a company ...
Related Articles
  1. Small Business

    Public Relations: Offering Businesses A Competitive Advantage

    To maximize the sales potential of any business, a public relations program should be part of the master marketing plan.
  2. Insights

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  3. Small Business

    6 Tips For Spinning A PR Nightmare

    One of the most readily available measures that organizations can employ to either avoid or reduce negative publicity is to aim for transparency.
  4. Personal Finance

    The Psychology Behind Why People Buy Luxury Goods

    Luxury goods are a great example of how irrational we can be; a decent and sturdy handbag can be purchased for $50, yet people will still spend thousands to buy a brand name. Why?
  5. Investing

    What's the Balance of Trade?

    The balance of trade is the difference between the value of all the goods and services a country exports and the goods and services it imports.
  6. Managing Wealth

    Differences Between Private Foundations And Public Charities

    Here's a look at the differences between these types of charitable organizations.
  7. Small Business

    Crisis Management Strategies for Business Owners

    When a public relations crisis arises, your company will be judged on how you handle it. Find out how it could destroy sales and the company's public image.
RELATED FAQS
  1. What are the main arguments in favor of the privatization of public goods?

    Learn about the main arguments why the task of delivering public goods should be the responsibility of companies under private ... Read Answer >>
  2. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, determined by how those goods are used, and see why capital ... Read Answer >>
  3. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  4. 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 >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center