Important differences between Public goods and Private goods

Public Goods

Public goods are goods or services that are non-excludable and non-rivalrous in nature. Non-excludable means that it is difficult or impossible to prevent anyone from consuming or benefiting from the good or service once it is provided. Non-rivalrous means that one person’s consumption of the good or service does not reduce the amount of the good or service available to others.

Examples of public goods include national defense, public safety, clean air and water, lighthouses, and basic scientific research. Because public goods are non-excludable and non-rivalrous, they are typically not provided by the market, since there is no incentive for private individuals or firms to produce them. Instead, governments are often responsible for providing public goods, since they have the ability to tax citizens and use the resulting revenue to provide these goods and services.

One important issue related to public goods is the free rider problem, which occurs when individuals or firms benefit from the provision of a public good without contributing to its cost. This can create a situation where there is underinvestment in public goods, since no one has an incentive to pay for them. Governments often try to address the free rider problem by providing public goods through taxation and other forms of public financing.

Definitions:

Different economists have given varying definitions of public goods, but they all revolve around these two key characteristics.

Here are Some definitions of public goods from different economists:

• Paul Samuelson defined public goods as goods that are “non-rival in consumption” and “non-excludable”. He argued that the market cannot provide these goods efficiently because they are subject to the “free-rider” problem, where people can enjoy the benefits of the good without paying for it.
• Richard Musgrave defined public goods as goods that have “social benefits” and are “non-excludable”. He argued that the government should provide these goods because they have positive externalities that cannot be captured by the market.
• James Buchanan and Gordon Tullock defined public goods as goods that are “jointly consumed” and “non-excludable”. They argued that public goods should be provided by the government because they are subject to the “prisoner’s dilemma” problem, where individuals have an incentive to free-ride on others.
• Anthony Atkinson defined public goods as goods that are “collectively consumed” and have “social value”. He argued that the government should provide these goods because they are essential for social welfare.

Types

Public goods can be classified into two main types: pure public goods and impure public goods.

Pure public goods:

These goods are both non-excludable and non-rivalrous. Examples include street lighting, national defense, and public parks. Pure public goods are considered to be the most important type of public goods because they provide benefits to society as a whole, rather than just to individuals.

Features of pure public goods:

• Non-excludable: It is difficult or impossible to prevent anyone from using the good.
• Non-rivalrous: The consumption of the good by one person does not reduce the availability of the good for others.
• Positive externalities: The benefits of the good spill over to others, creating positive externalities.

Impure public goods:

These goods are partially non-excludable and/or partially non-rivalrous. Examples include healthcare, education, and public transportation. Impure public goods are considered to be less important than pure public goods because they provide benefits to individuals, rather than to society as a whole.

Features of impure public goods:

• Partially non-excludable: It is possible to exclude some people from using the good, but not all.
• Partially non-rivalrous: The consumption of the good by one person reduces the availability of the good for others to some extent.
• Positive externalities: The benefits of the good spill over to others, but to a lesser extent than in the case of pure public goods.

Private Goods

Private goods are goods or services that are both excludable and rivalrous. Excludable means that the seller can prevent people from using the good unless they pay for it, while rivalrous means that the consumption of the good by one person reduces its availability for others.

Examples of private goods include food, clothing, electronics, and personal transportation. Private goods are usually provided by private firms operating in competitive markets, and the price of the good is determined by supply and demand.

Features of private goods:

• Excludable: The seller can prevent people from using the good unless they pay for it.
• Rivalrous: The consumption of the good by one person reduces its availability for others.
• Negative externalities: The consumption of the good can create negative externalities for others, such as pollution or congestion.

Private goods are usually characterized by a high degree of competition among suppliers, which helps to ensure that the price reflects the true cost of production and that the goods are efficiently allocated. Private goods can be produced and consumed in varying quantities, depending on the preferences and ability to pay of the individuals who demand them.

Definitions:

Different economists have given varying definitions of private goods, but they all revolve around these two key characteristics.

• Adam Smith defined private goods as goods that are “produced by the industry of private individuals” and “exclusively consumed by those who acquire them”. He argued that the market should be left to provide private goods because the pursuit of self-interest would ensure their efficient allocation.
• Milton Friedman defined private goods as goods that are “owned by individuals” and “can be traded in a market”. He argued that the market was the best way to allocate private goods because it allowed individuals to exchange goods voluntarily and efficiently.
• Ronald Coase defined private goods as goods that are “excludable and rivalrous” and argued that property rights were essential for their efficient allocation. He argued that the market could provide private goods efficiently as long as property rights were well-defined and enforced.
• Joseph Stiglitz defined private goods as goods that are “excludable, rivalrous, and have no externalities”. He argued that the market could provide private goods efficiently, but only under certain conditions, such as when there is perfect competition, no externalities, and no public goods.

Types of private goods and features

Private goods are products or services that are consumed exclusively by the person who purchases or uses them, and which can be restricted or denied to others. There are several types of private goods, including:

Physical goods:

These are tangible products that can be touched and held, such as clothing, food, electronics, and furniture.

Features: Physical goods are often durable, meaning they can be used repeatedly over time. They are also rivalrous, meaning that once a person has purchased and is using a physical good, it is no longer available for someone else to use.

Digital goods:

These are intangible products that can be accessed and used electronically, such as music, movies, ebooks, and software.

Features: Digital goods are non-rivalrous, meaning that they can be used by multiple people at the same time without affecting their availability. However, they are often non-durable, meaning that they can be easily replicated and distributed, which can lead to issues with piracy and intellectual property rights.

Personal services:

These are services that are provided by individuals, such as haircuts, legal advice, and personal training.

Features: Personal services are often non-rivalrous, meaning that they can be provided to multiple clients without affecting their availability. However, they are often non-durable, meaning that they cannot be stored or used at a later time.

Club goods:

These are goods that are only available to a specific group of people who have paid for membership or access, such as gym memberships, country club memberships, and subscription-based services.

Features: Club goods are often non-rivalrous, meaning that they can be used by multiple members without affecting their availability. However, they are excludable, meaning that non-members are restricted from accessing them.

Differences between Public goods and Private goods