Public Goods
Public goods are products that are used by all members of society,
whether or not they pay for them. The government provides services like
national security, traffic management, and other public goods that can benefit
numerous people at once. The government collects money in the form of taxes and
spends it on making bridges, parks, roads, etc. Defense of the nation, law
enforcement, flood control, pollution control, and education are a few examples
of public goods and services.
The government offers public goods. It should be highlighted
that the public sector does not always produce public goods. Since it is free,
no one can be barred from taking advantage of its mastery. The use of public
goods cannot be restricted since they are non-excludable. Public goods are not
consumed in a competitive market. This shows that there is no change in the
amount of a public good that others can use.
Why is national defense a public good?
Since everyone in the nation benefits from national defense,
whether they directly pay for it or indirectly through taxes paid by others, it
is regarded as a public good.
Characteristics of Public Goods
Free rider’s problem: The distribution of public goods to
individuals without their having to pay for it creates a situation known as the
"free rider problem." To put it another way, everyone would benefit
if they worked together to create and maintain a common good. However, some
individuals can gain from it without making any contributions because they
choose not to. When there is no means to enforce payments made to provide such products, the free rider dilemma occurs (or services).
Non-rivalry refers to the idea that when a good is used, the amount available for other people does not decrease. For
instance, using a street light does not lower the amount of light that is
available for other people, but eating an orange does.
Non-excludability: When it is impossible to supply a product
without also making it feasible for others to enjoy it, this is known as
non-excludability. For instance, if a dam is built to stop floods, everyone in
the area is protected, regardless of whether they helped build flood defenses.
Pareto Optimality in Public Goods
It is impossible to make more than one person better off
without also making someone else worse off, according to the Pareto principle,
a general rule of thumb in economics. To put it another way, if you help one
person at the expense of another, something is wrong
This principle can be applied to any public good or service(
similar to education), but it's particularly useful when applied to healthcare because healthcare providers are paid for their services on a figure-for-service base, and there may be numerous cases with different requirements, and
preferences.
How do public goods cause market failure?
A market failure can be caused by negative externalities, monopolies, inefficient production and distribution, imperfect knowledge, inequality, and public goods.
Market failures occur when some users of public goods refuse
to pay but yet use them as real payers. Consider the possibility that all
citizens, regardless of whether they pay taxes to the government, are entitled
to access to police protection as an example of a public utility.
Conclusion:
Last but not least, it is not possible to charge customers
for using these commodities or to allow them to use public goods to pay for private
services (such as roads). Public goods are challenging to produce and maintain
when they are provided by the government since they do not generate enough
revenue. To provide these services, governments must either raise
taxes on residents or borrow money from other sources.