A public good is the exact opposite of a private good: it is a good that is both nonexcludable and nonrival in consumption. A public sewer system is an example of a public good: you can’t keep a river clean without making it clean for everyone who lives near its banks, and my protection from great stinks does not come at my neighbour’s expense. Here are some other examples of public goods:
Disease prevention. When doctors act to stamp out the beginnings of an epidemic before it can spread, they protect people around the world.
National defence. A strong military protects all citizens.
Scientific research. More knowledge benefits everyone. Because these goods are nonexcludable, they suffer from the free-rider problem, so no private firm would be willing to produce them. And because they are nonrival in consumption, it would be inefficient to charge people for consuming them. The marginal social benefit of an additional unit of a public good is equal to the sum of each consumer’s individual marginal benefit from that unit. At the efficient quantity, the marginal social benefit equals the marginal cost of providing the good.
No individual has an incentive to pay for providing the efficient quantity of a public good because each individual’s marginal benefit is less than the marginal social benefit. This is a primary justification for the existence of government.
Although governments should rely on cost-benefit analysis to determine how much of a public good to supply, doing so is problematic because individuals tend to overstate the good’s value to them.
UGC NET – PUBLIC ECONOMICS
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