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Public Goods

Goods that are commonly available to all people within a society or community that are non-excludable and non-rivalrous

What are Public Goods?

Public goods are goods that are commonly available to all people within a society or community and that possess two specific qualities: they are non-excludable and non-rivalrous. Everyone has access to use them, and their use does not deplete their availability for future use.

  • Non-excludability – Individuals or groups of individuals can’t be specifically excluded from using the goods
  • Non-rivalry – The use of the goods by some individuals doesn’t cause a reduction in their availability to others, which would thereby violate the first quality

 

Public Goods

 

Public goods are generally considered as goods that are available to anyone. They differ from common goods in that the latter are typically non-excludable but are usually rivalrous to some extent. Wild game used for food is an example of a common good. People cannot generally be excluded from obtaining and using it; however, the same animals cannot be used more than once.

 

The Issue of Accessibility and Use of Public Goods

Public goods, because they are designed to be accessible by the public, tend to experience a negative impact from use, which affects all users equally. An example is air, which is negatively impacted by widespread use, as a result of pollution.

Another major issue in terms of accessibility is something known as the free rider problem, which means that individuals who don’t pay for accessing a good – one that others do pay for – enjoy continued access to the good to the detriment of individuals who shoulder the cost of the privilege. This means that the good can become overused and under-produced. In the event that such a situation arises, restrictions may be placed on public goods, making them club goods or private goods – things that not everyone can access, because of the imposed limitations.

 

Examples of Public Goods

The list of public goods varies, depending on how specifically the term is viewed. However, common examples of public goods include:

  • Street lighting – It is generally provided by communities, and consumption/use of the lighting doesn’t prevent others from using it as well.
  • Emergency services – They are provided to communities and their use benefits and strengthens the community.
  • National defense – Whether paid or voluntary, national defense services protect the country as a whole.

 

Final Word

Public goods are important because they are designed to be available to the public in general and possess specific qualities that prevent individuals or groups from being unable to access them. They also must be able to withstand use without then becoming unavailable to future users.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:

  • Giffen Good
  • Invisible Hand
  • Supply and Demand
  • Veblen Goods

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!