Which of the following is a characteristic of a public good?
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Public goods
The definition of a public good
How Are Public Goods Funded?
An allocation of public finance reserves is often responsible for providing public goods, but the private sector can also make such goods available. The former is an example of macroeconomics, while the latter is an instance of microeconomics.
In the case of macroeconomics, you can consider when taxpayers and voters enable policymakers in their federal government to provide for the national defense, guarantee health care, ensure clean air, or fight the negative effects of climate change with government spending.
These are all examples of the provision of public goods with many positive externalities for the public good overall. The collective action of local communities can also lead to the acquisition of public goods.
When it comes to microeconomics, you can consider when a competitive enterprise in the free market suspends its self-interest to contribute a public good for the general well-being of society.
When they do so without an expectation of remuneration or reward (as with a higher valuation of their stock, for instance), they are creating a public good. As a more specific example, a private firm or individual who releases open-source software without requiring any payment beyond general attribution is releasing a public good.
What are the Characteristics of Public Goods?
Public goods have two key characteristics – non-rivalry and non-excludability. Non-rivalry means that more than one person can use the good without diminishing others ability to use it. There is also non-excludability, which refers to the inability to restrict other consumers from using the good.
3 Characteristics of Public Goods
Public goods must meet a few criteria to be considered as such. These are the three most important characteristics:
- 1. Social benefits: Public goods must have some social benefit for a community as a whole. Whether locally, nationally, or globally, public goods must increase the general well-being and efficiency of society.
- 2. Undepletable: Public goods are non-rivalrous. A non-rival good is a resource no one needs to compete for, as there is never an undersupply of it. So a public good cannot be one that society could possibly use up.
- 3. Widely available: Public goods must be non-excludable and available to everyone. In other words, it’s not possible to enforce property rights in relation to them. Everyone must have open access to them at all times.
3 Types of Goods Besides Public Goods
You can compare public goods—which are free and open resources to society—to other goods in the field of economics. Here are three more common types of goods:
- 1. Common good: A common good is very similar to a public good, except for the fact that it can be depleted. In other words, it doesn’t meet the standard of non-rivalry (public goods are resources no one must compete for to use). As an example, no one is excluded from accessing the fish stocks in the ocean, but once you catch a fish, you cannot share it, and the stocks are depleted overall.
- 2. Impure public goods: Impure public goods are close to being pure public goods, but they don’t quite meet one of the major matrics. They might be close to total non-excludability or non-rivalry, but since they allow for some exclusion or rivalrousness, you must consider them impure or incomplete public goods. Many common goods would qualify as impure public goods.
- 3. Private good: Goods that are neither non-excludable nor non-rivalrous are private goods. You must purchase a private good to enjoy it. These can be anything from food you buy at a grocery store or restaurant to club goods, such as membership at an exclusive golf course or country club.
What Are the Main Differences Between Private and Public Goods?
What Is a Quasi-Public Good?
Quasi-Public Goods have elements of both public and private goods, such as a public bridge that is available to all, but loses value when it becomes congested during rush hour.
Public Goods and Market Failure
When there is a market failure, it is argued that governments should step in to provide public goods. For example, if private companies are unable or unwilling to provide a good, then the government should step in. The reason for such is that public goods create a greater social benefit than the individual cost.
For example, everyone may be willing to spend $1 per month for policing. However, when measured collectively, this figure tends to increase. Consumers will value a public good more highly in the knowledge that others are also paying for it. As a result, the social value is said to be maximized when provided for by the public.
There are usually market failures with public goods because private entities are unwilling or unable to supply the socially optimal amount to the market. For example, there is no company or rational way by which a private firm would provide defece to a nation.
Perhaps some contractors could supply part of the market, but defence is often a big employer in most nations – particularly the US. This is known as a market failure because a private firm is unable to meet the necessary demand required. Therefore, the government steps in to provide the public good and overcome this market failure.
Argument against Public Goods
The issue with public goods is that it brings value to individuals who have not paid for the goods, which comes under the ‘free-rider’ problem.
So whilst it may create social benefits, it comes at a greater cost to some. For example, society may value the goods more highly, but this extra value is borne by involuntary taxation.
If we look at defence, for example, some agree with having a large military, and some don’t. By increasing the size of the military, jobs are created, and it can be argued that greater social value is created through more sophisticated defence systems. However, it is completely involuntary, and the minority must submit to the wishes of the majority.
The very nature of public goods comes under the assumption that the social value is greater than the private cost. However, this assumption is not always accurate. After all, it is impossible to gauge the social benefit to the millions of taxpayers. Do they truly value the construction of a new local park to tune the of $5 million? Does that social benefit exceed the cost? That is a question that is only answered by elected officials instead of the consumer.
