A public good passes two tests that ordinary goods fail.
Two tests
Non-rivalrous
One person enjoying the flood defences leaves just as much for everyone else.
Non-excludable
Nobody can be kept from the flood defences, even if they do not pay.
The points to remember
- A pure public good passes both tests: national defence, a lighthouse.
- Fail either test and it is not a pure public good.
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The two tests sort every good into four kinds.
The four kinds of good
| Excludable | Non-excludable | |
|---|---|---|
| Rivalrous | Private good: a sandwich | Common pool resource: fish in the sea |
| Non-rivalrous | Club good: a streaming service | Public good: street lights |
Remember it as: Rival? Excludable? Two no's make a public good.
See how examiners mark answers
Answer exam-style questions with model answers. Learn exactly what earns marks and what doesn't.
Why will no firm build a public good, even when everyone wants it?
Our example (made-up numbers)
| Value to each household | Households | Total value | Cost | |
|---|---|---|---|---|
| Street lights for one road | €200 | 100 | €20,000 | €10,000 |
The free-rider problem
Worth building
Total value €20,000 is more than the €10,000 cost.
Nobody pays
Each household hopes the others pay, since it gets the light anyway.
So nothing is built
No firm can charge, so the market provides nothing at all.
Quick reminder
- Axes: Costs, benefits up the side, Q along the bottom
- Curves: D = MPB, MSB above it and S = MPC = MSC
- Marks: Qm (the market) and Qopt (the social optimum), with the welfare loss between them
- Dots with dashed lines to the axes
- No numbers, no title
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A Paper 1 part (a) question, for 10 marks.
Explain the difference between a public good and a merit good.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Both parts fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Both parts explained, terms mostly right, the diagram included and explained |
| 5–6 | Partly explained, some terms, the diagram included |
| 6 at most | Only one of the two parts answered, however good it is |