Public goods

Public goods are a fundamental concept in microeconomics, particularly within the study of market failure. A public good is defined by two key characteristics: non-rivalry and non-excludability. Non-rivalry means that one person's consumption of the good does not reduce the amount available for others; for example, a lighthouse's beam can guide many ships simultaneously without being depleted. Non-excludability means that it is impossible or prohibitively costly to prevent anyone from consuming the good, even if they haven't paid for it. Classic examples include national defence, street lighting, and flood defence systems.

The significance of public goods lies in the fact that they are typically under-provided by the free market, leading to market failure. Because firms cannot easily charge consumers for using a public good (due to non-excludability), there is little profit incentive to supply it. Additionally, non-rivalry means that the marginal cost of providing the good to an extra person is zero, so charging a price would be inefficient. This creates a 'free rider problem', where individuals can benefit without paying, leading to under-consumption and under-production. As a result, public goods are usually provided by the government and funded through taxation.

Understanding public goods is crucial for analysing government intervention in markets. It connects to broader topics such as externalities, merit goods, and the role of the state in correcting market failures. In OCR A-Level Economics, you will be expected to distinguish between pure public goods, quasi-public goods, and private goods, and evaluate the effectiveness of government provision versus alternative methods like subsidies or public-private partnerships.