This article will help you to learn about the difference between public goods and private goods.
Difference between Public Goods and Private Goods
A pure public good is a good or service that can be consumed simultaneously by everyone and from which no one can be excluded. A pure public good is one for which consumption is non-revival and from which it is impossible to exclude a consumer. Pure public goods pose a free-rider problem. A pure private good is one for which consumption is rival and from which consumers can be excluded.
Some goods are non-excludable but are rival and some goods are non-rival but are excludable.
The first feature of a public good is called non-rivalry. A good is non-rival if consumption of one unit by one person does not decrease available units for consumption by another person. An example of non-rival consumption is watching a television show.
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A private good, by contrast, is rival. A good is rival if consumption of one unit by one person does decrease available units for consumption by another person. An example of rival consumption is eating a burger.
The second feature of a public good is that it is non-excludable. A good is non-excludable if it is impossible, or extremely costly, to prevent someone from benefitting from a good who has not paid for it. An example of a non-excludable good is national defence. It would be difficult to exclude a foreign visitor from being defended.
A private good, by contrast, is also excludable. A good is excludable if it is possible to prevent a person from enjoying the benefits of a good if they have not paid. An example of an excludable good is cable television. Cable companies can ensure that only those people who have paid the fee receive programmes.
Table 2 classifies goods by these two criteria and gives some examples of goods in each category. Goods like Lighthouse, National defence are known as pure public goods. One person’s consumption of the security provided by our national defence system does not decrease the amount available for someone else — defence is non-rival. The army cannot select those whom it will protect and those whom it will leave exposed to threats — defence is non-excludable.
Many goods have a public element but are not pure public goods. An example is a motorway. A motorway is non-rival until it becomes congested. One more car on the Delhi Ring Road with plenty of space does not reduce the consumption of road services of anyone else.
But once the motorway becomes congested, one extra vehicle lowers the quality of the service available for everyone else — it becomes rival like a private good. Also, users can be excluded from a motorway by toll gates. Another example is fish in the ocean.
Ocean fish are rival because a fish taken by one person is not available for anyone else. But ocean fish are non-excludable because it is difficult to stop other countries taking them if they are outside a country’s territorial limits.
Public goods create a free-rider problem. A free rider is a person who consumes a good without paying for it. Public goods create a free rider problem because the quantity of the good that they person is able to consume is not influenced by the amount the person pays for the good. Markets fail to supply a public good because no one has an incentive to pay for it.