Key Idea: A town wants street lights. Nobody will sell them, because once a light is on, everyone on the street gets the light whether they paid or not. So each person waits for someone else to pay, and nobody does. That is a public good: a good nobody can be kept away from, and that is not used up when one more person enjoys it. The market does not make too little of it. It makes none. So the government pays for it out of tax, and then has to decide how much to buy and who should build it. Where you meet it:
Paper 1
- Essays. This is where the topic is asked.
- Distinguish [10]: a public good from a merit good.
- Discuss or Evaluate [15]: whether the government should step in, and whether it must supply public goods directly.
Paper 2
- Data response.
- Not asked here so far. If a text mentions flood barriers or street lights, the definition is two words: non-excludable and non-rival.
Every market-failure question
- The four types of goods.
- Public goods are one corner of the same 2×2 as private goods and common pool resources (2.8). Know which corner you are in before you write.
🏛️ Two words that make a public good
A public good is non-excludable: you cannot stop someone using it, even if they did not pay. It is also non-rival: one person using it leaves just as much for everyone else. A private good is the opposite on both counts.
A private good: a sandwich: **Excludable.** The shop can refuse to hand it over until you pay.. **Rival.** If you eat it, nobody else can.. So a firm can charge for it, and the market supplies it..
A public good: a street light: **Non-excludable.** Once it is on, everyone on the street gets the light. You cannot switch it off for the one person who did not pay.. **Non-rival.** A second person walking under it does not make it dimmer for the first.. So no firm can charge for it, and the market supplies none..
Say non-excludable and non-rival. One word alone describes something else: non-excludable but rival is a common pool resource, excludable but non-rival is a club good. Street lighting, national defence, flood barriers, lighthouses and a public fireworks display are all both.
🚶 The free-rider problem: why nobody sells it
A free rider is someone who enjoys a good without paying for it. With a public good, everyone can be one. Follow what happens when a firm tries to sell a fireworks display to a town.
From non-excludable to not supplied
- Nobody can be excluded — The fireworks go up over the whole town. Anyone who steps outside sees them, ticket or no ticket.
- So nobody needs to pay — Each person reasons the same way: if I do not pay, I still see the show. So they wait for the neighbours to pay.
- So the firm earns nothing — If everyone waits, no tickets are sold. The firm cannot cover the cost of the fireworks.
- So the show is not put on — The town wanted the display and would have been better off with it. The market supplies none at all.
Cannot exclude → will not pay → no revenue → none supplied
Important: With an externality (2.8) the market makes too little or too much: the quantity is wrong, but it is not zero. With a public good the market makes nothing. That is why this is called a complete market failure. Say supplies none, not under-provides. The two words describe two different failures.
📊 The four types of goods
Put the two words on a grid and every good lands in one of four boxes. Each box has its own kind of market failure, or none.
| Is it rival? | Excludable | Non-excludable |
|---|---|---|
| Rival: one more user leaves less for others | Private good: a sandwich, trainers, a bus ticket. The market works. | Common pool resource: a fish stock, a forest. Each user takes the full gain and shares the loss, so it is overused (2.8). |
| Non-rival: one more user leaves the same for others | Club good (quasi-public): a streaming service, a toll road. A firm can charge, so the market supplies it, though it may still fail in part. | Public good: national defence, street lights. Nobody can charge, so the market supplies none. |
A merit good such as a university place is excludable and rival: the university can refuse you, and your seat is not someone else's. It is under-consumed because buyers undervalue the benefit, not because it cannot be sold. A public good cannot be sold at all. That is the sentence a Distinguish question wants written down.
🏗️ Who pays, and who builds
Because the market supplies none, the government steps in and pays out of tax. Everyone pays, so nobody can free-ride. But there is no price to tell it how much to buy, and paying for a good is not the same as making it.
The market supplies none
- Free riders mean no revenue, so no firm will build the flood barrier.
Tax pays for it
- The government funds it from taxation. Everyone pays, so nobody can free-ride.
Decide how much
- No price signal, so the government uses cost–benefit analysis: estimate the social benefit of the barrier and compare it with the cost. The estimate is imprecise, and politics pulls at it too.
Choose who builds it
- Produce it itself with state engineers, or contract a private construction firm and pay it from tax. Either way the government has provided the barrier.
Most roads are paid for from tax and built by private contractors. The government provides; the firm produces. Separate the two questions early in any 15-mark answer. Should government pay for it? and Should government build it? have different answers.
🔀 Quasi-public goods: the boundary moves
Many goods are public in some conditions and not in others. A quasi-public good has some of the two properties but not fully, and technology or policy can change which box it sits in.
| Good | Normally | What makes it excludable | What makes it rival |
|---|---|---|---|
| A road | non-rival when traffic is light | a toll barrier or a number-plate camera | congestion: one more car slows every other car |
| A park | open to all, so non-excludable | a fence and an entry ticket | a crowded summer afternoon, when one more picnic takes the last patch of grass |
| Wi-Fi at a festival | anyone in range can use it | a password | too many users on the bandwidth, so everyone's connection slows |
It depends on two things: whether exclusion is practical, and whether the good has positive externalities that justify paying for it from tax. A toll can pay for a motorway. A password cannot pay for a lighthouse. Say which kind of good you are looking at before you say who should supply it.
⚖️ Should the government do it?
Government provision solves the free-rider problem, but it brings problems of its own. Every 15-mark answer in this topic weighs these two lists.
For government provision: **It solves the free-rider problem.** Everyone pays through tax, so the flood barrier gets built.. **Essential goods are available**: defence, the police, street lighting.. **Positive externalities are captured.** A clean water system protects the health of the whole town, not only the people who would have paid..
Against, or at least a caution: **No price signal.** The government has to guess the right quantity, so it can build too much or too little.. **Government failure.** Political motives, slow bureaucracy or corruption can send the money to the wrong project.. **Opportunity cost.** Tax spent on a new road is tax not spent on a school. Taxpayers disagree about which matters more..
Important: Listing both sides is not evaluation. Say which side wins for this good: for a pure public good the alternative to government is nothing, so provision wins even with its flaws. For a quasi-public good a toll or a password may do the job. And consider the middle road: government pays, a private firm builds.
✍️ Worked examples
This topic is asked in three Paper 1 shapes, none of them with a diagram. Try each before opening the plan.
A coastal town has a lighthouse at the harbour mouth and a fish stock in the bay. Distinguish between a public good and a common pool resource.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Now the 15-mark question on whether the government should act at all.
Using real-world examples, discuss the view that a government should use tax revenue to supply goods that the market will not provide.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
And the shape that tests whether you saw the boundary move.
Using real-world examples, evaluate the view that new technology makes government provision of public goods unnecessary.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
✅ Quick self-check
Tap each card to check yourself.
Define a public good. A good that is non-excludable (nobody can be stopped from using it, even without paying) and non-rival (one person's use leaves the same amount for everyone else). Street lighting, national defence.
What is the free-rider problem? Because nobody can be excluded, each person can enjoy the good without paying. If everyone reasons that way, nobody pays, no firm earns revenue, and the good is not supplied at all.
How does the market failure for a public good differ from an externality? With an externality the quantity is wrong (too much or too little). With a public good the quantity is zero. It is a complete market failure.
Non-excludable and rival. Which box? A common pool resource: a fish stock, a forest. Overused, because each user takes the full gain and shares the loss. A public good is non-excludable and non-rival.
Why is a merit good not a public good? A merit good such as a university place can be sold: it is excludable and rival. It is under-consumed because buyers undervalue it. A public good cannot be sold at all.
What is the difference between provision and production? Provision is who pays for the good and guarantees it. Production is who does the work. A government can provide a road by paying a private firm to build it.
How does a government decide how much of a public good to supply? There is no price signal, so it uses cost–benefit analysis: estimate the social benefit and compare it with the cost. The estimate is imprecise, and political priorities also shape the decision.
Give one thing that turns a road from a public good into a private one. A toll. A barrier or a camera makes the road excludable, so a firm can charge. Congestion also makes it rival. A quasi-public good can change box as technology changes.
Exam tips
- Say both words: non-excludable and non-rival. One word alone defines a common pool resource or a club good, not a public good.
- The market supplies none of a public good, not too little. Use the word none and say why: free riders mean no revenue.
- A merit good is not a public good. Education can be sold; street lighting cannot. Write that sentence in a Distinguish answer.
- Separate provision (who pays) from production (who builds) early. Most 15-mark answers here turn on that distinction.
- When a question says always or unnecessary, find the case where the word breaks: a pure public good for one, a toll road for the other.
- Evaluation is a verdict for the good in the question. For a pure public good the alternative to government is nothing; for a quasi-public good it may be a toll or a password.
- Use a real example that names who is what: the flood barrier protects every house in the valley, so no household will pay for it alone.