Public goods are goods or services that can be consumed by everybody in a society, or nobody at all. They have three characteristics. They are:

  • non-rival
    one person consuming them does not stop another person consuming them.
    eg TV broadcasts, lighthouse
  • non-excludable
    if one person can consume them, it is impossible to stop another person consuming them.
    eg a fireworks display
  • non-rejectable
    people cannot choose not to consume them even if they want to.
    eg defence

Because of the combination of non-rivalness and non-excludability, it is often hard to get people to pay for public goods. Typically, the social marginal cost of consumption is zero. If the price is set above this level, public goods will be under consumed. If the price is set at this level, public goods will tend to be under produced, unless the state intervenes. Thus public goods are typically regarded as a cause of market failure.

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