Glossary term
Public Goods: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Public goods are goods and services, such as national defence or street lighting, whose benefits are available to everyone and whose use by one person does not reduce the amount available to others. Because non-payers cannot be excluded, private firms would not supply them, so governments provide them using tax revenue.
In more detail
Public goods raise the free-rider problem: since people benefit whether or not they pay, each has an incentive to let others pay. This is why voluntary contributions fall short and the state collects taxes instead. Not everything the government supplies is a public good; hospitals and schools are provided publicly for other reasons, such as fairness.
Example
A lighthouse guides every ship in the area. The owner cannot stop non-paying ships from using it, so it is usually provided by the state.
Key points
- Non-excludable: nobody can be kept out.
- Non-rival: use by one does not reduce use by others.
- Funded through taxes.
Common mistake
Calling every government-supplied service a public good.
Related terms
Where it is explained
This term is explained in Class 12 Macroeconomics Chapter 5: The Government, Functions and Scope.