Public Goods

Publication Date :

20 Feb, 2024

Blog Author :

Edited by :

Reviewed by :

Table Of Contents

Public Goods Definition

Public Goods are those utilities offered and administered by a nation's government for everyone's use and benefit. Such goods' availability does not get affected no matter how many consumers buy them and how frequently. Common examples of these goods include roads, power supply, drainage, infrastructure, streetlights, and long-term government services that allow everyone to take advantage of them.

Typically, public goods and services are created, distributed, monitored, and maintained by the nation's government, not private enterprises. It is so because they are made for general public use and not to generate profit; therefore, it demotivates them to enter into its mechanism. They are also called social or collective goods.

Public Goods Definition

Public goods are government-offered goods and services to everyone in a society or living community. Such goods are not exclusive to anyone.
The public goods in economics represent the growth and development of the whole nation and usually suffer a negative impact due to overutilization.
For a long time, national and local governments have spent time designing, building, and maintaining such goods for the common welfare.
In modern times, the government may connect with private enterprises to offer efficient social goods and services.

How Does Public Goods Work?

Public goods are the utilities and services created for ordinary people by the government. It simply includes all the basic amenities that every government starts, maintains, and regulates to ensure that ordinary people have a degree of comfort available. Public goods in economics are for everyone, with no exclusivity or barriers. Moreover, it is the right of every individual to use it for their benefit.

Different types of public goods exist in society; some are free, while others are available at a minimum expense. For example, roads are completely free, but a public transport service may charge a ticket price for commoners to travel. Since it is not produced with the objective of profit, there is always the problem of free riders in such goods. In simple terms, it means overconsumption of goods by people, making them unavailable for people in dire need. People who are not paying taxes are also using them equally and irresponsibly.

Many economists define public goods as goods that ordinary people pay for through taxes. A good example is national defense and armed forces like police and security personnel that protect society and national borders. When citizens pay their taxes, a portion goes for the maintenance of such forces.

Characteristics

The characteristics of social goods are as follows:

It is for everyone and restriction-free. It is majorly associated with global public goods, which means that no one user can stop another from using the good.
They are linked to positive externalities.
They serve and suffer from the free rider problem.
It was not created for market competition or profit-making. Thus, it is non-rivalrous.
The government provides these goods as a part of social development and facilities for people to solve social problems.
Private companies either do not enter into offering social goods or try to bring exclusivity to them.
Maintaining quality standards.
People generally possess a granted and non-valuing thought for these goods.

Examples

Let us take a look at some examples to understand the concept better:

Example #1

Suppose Peter lives in a small village. The road to the nearest town is muddy and full of potholes and needs streetlights installed. Peter speaks with the village head and finds it has been like this for the past nine months. The village head explained that there was no hospital, and people had to travel to the nearest town for simple medication.

Peter and other villagers visited the local welfare office and filed a request explaining the situation. The government sanctioned the work in the next two weeks, and the road construction started. New streetlights were installed within the next four months, along with the construction of public hospitals.

This road is a simple public goods example; everyone who lives in the village, including those traveling, will use the road and benefit from streetlights. The roads, streetlights, and public hospitals are provided by the government, not by a private corporation.

Example #2

In September 2021, the United Nations said that there is a significant need to reinvigorate the global public goods of peace, economic stability, and a healthy environment. In recent years, the world has been going through significant problems like deforestation, excessive use of plastics, polluting water bodies, etc.

These are primary concerns that are rising due to transnational organized crimes. These crimes have become a barrier to the progress of global social goods. As a result, the UN must address transnational organized crime in conflict prevention, peace operations, and peacebuilding. It should provide a holistic approach that considers developmental, human rights, and security implications for vulnerable populations.

Advantages And Disadvantages

There are two sides of every coin. Hence, these social goods have some advantages and disadvantages, some of them are as follows:

Advantages

Every citizen shares equal rights to it, and there is no exclusivity.
It is provided for the common welfare to eliminate social concerns.
The government offers accessibility to many such social goods and emergency services.
They have wide accessibility and scope of utilization.

Disadvantages

Overconsumption and excess utilization of goods and essential services.
Every such good suffers the problem of free riders.
Inflation and rising production costs lead to market failure.
People take it for granted, do not value it, and therefore misuse it, and lack of proper maintenance persists.
Every year, local and national government authorities spend a large amount of money on these goods with little or no returns.

Public Goods vs Private Goods

There are significant differences between the public and private goods. Some of them are as follows:

Public Goods	Private Goods
The government and natural resources provide these.	Business enterprises manufacture private goods to satisfy customer needs.
They are accessible and inclusive to all.	They come with a price and are mostly expensive.
There is no opportunity cost in social goods.	There is an opportunity cost in private goods.
Such goods and services are not traded in the free market.	These goods are sold in the free markets.
It is made with consistent quality.	They vary in quality.

Common Goods vs Public Goods

The public and common goods are very different from one another. Here are a few of them:

Common Goods	Public Goods
These are naturally available.	The government provides these goods.
Common resources are non-excludable but are rivals.	They are non-excludable and non-rival.
Common goods can be depleted.	Social goods do not get depleted.

Frequently Asked Questions (FAQs)

1. Why must the government provide public goods?

Social goods refer to roads, dams, infrastructure, and proper administration; market mechanisms cannot regulate such goods. These goods reflect a country's growth, national development, and social upliftment. Therefore, it is provided by the government for the benefit of its fellow citizens and their utilization.

2. What are quasi-public goods?

A quasi-public good is a good with all the characteristics that bring it close to social goods. A quasi-public good eventually becomes a competitive rival to the original collective goods. It usually happens during peak demand when people start consuming it parallel to these collective goods.

3. How do public goods cause market failure?

When a resource is not distributed effectively or is exploited in the free market, it is termed market failure. Social goods are for everyone to consume and are non-rivalrous and non-excludable; one cannot stop anyone from taking benefit from them. Social goods may lead to market failure as everyone enjoys the services, but only some are paying or taking care of them.