A public good passes two tests that ordinary goods fail.
Two tests
Non-rivalrous
One person enjoying the street lights leaves just as much for everyone else.
Non-excludable
Nobody can be kept from the street lights, 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.
Paper 1 asked this in May 2025, as part (a) for 10 marks.
Explain the difference between a public good and a merit good.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
What the diagram must show
- Merit-good diagram: MSB above MPB, S = MPC = MSC; Qm below Qopt; the welfare loss.
- Say why there is no such diagram for a pure public good: there is no market at all.
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 |