Describe the Public good and Private goods.
Describe the Public good and Private goods.
Or
Differentiate between Public good & Private goods. Also define different concepts of public goods.
Public goods vs. Private Goods
Public Goods: A public good refers to a good that is non-rival and non excludable. Non-rivalry implies that consumption of the good by one individual does not reduce availability of the good for consumption by others. Non-excludability implies, that no one can be effectively excluded from using the good. For example, street light is a public good. The street light is non-rivaled because somebody using the lighting does not make it less bright for other users. It is also non-excludable as you cannot make people pay for the good as they use it. People who do not pay but still enjoys the benefit are known as, “free riders”.
Paul A. Samuelson is usually credited as the first economist to develop the theory of public goods. He defined a public good as “Goods which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good.”
Common examples of public goods include: defence, public fireworks, lighthouses, clean air environmental goods and information goods (such as software development, authorship, and invention). Some goods (such as orphan drugs) require special governmental incentives to be produced, but can’t be classified as public goods since they don’t fulfill the above requirements (Non-excludable and non-rivalrous.) Law enforcement, streets, libraries, museums, and education are commonly misclassified as public goods, but they are technically classified in economic terms as quasi public goods because excludability is possible, but they do still fit some of the characteristics of public goods.
Private Goods: The opposite of a public good is a private good. A private good is rival and excludable. An example of a private good is my professor’s car. BMW is manufactured in a fixed number of 5 series sedans; there is not enough built for everyone to own one. My professor’s BMW is also excludable; as he does not allow anyone else to drive or ride his car.
Other Concepts Related to Public Goods
1. Social Goods : Social goods are defined as public goods that could be delivered as private goods, but are usually delivered by the government for various reasons, including social policy, and are funded via public funds like taxes.
2. Mixed Good: Some goods have elements of both public and private goods. A perfect example of this type of good is a local fishing hole. The fishing hole has the non-excludable element of public goods (we cannot exclude certain people from fishing in the public place), but also has the rival element of a private good (there is a limited amount of fish in the pond). This type of good is called a common pool resource. Because, here each individual only catches a small fraction of the total number of fish, we see people over fishing the pond. This over fishing may lead to the depletion of the fishing utility offered by the pond.
3. Club Goods: On the other hand, club goods are non-rival, but are excludable. An example of a club good is cable TV. Your use of cable TV does not limit my ability to view television shows on cable; as long as you are living in an area where necessary cable is present, you can get cable TV. However, it is excludable in case you have to pay the monthly fee. This is an example of an industry with a relatively flat marginal cost schedule; adding an additional user faces a small marginal cost.
4. Merit Goods: Merit goods are the products generally not distributed by means of price system, but on merit or need, because people though having perfect knowledge will buy their wrong amount. These goods can be supplied by free market, but not on the right quantity. Merit goods are, for example, education and to some extent the healthcare. They are provided by state as “good for you”. Merit goods have two basic characteristics:
