Definition
Public Goods
Public goods are non-rival and non-excludable: one person's use doesn't reduce another's, and no one can be easily excluded, so markets underprovide them and governments step in.
Classic public goods include national defence, street lighting, clean air and public broadcasting, everyone benefits, and you can't charge each user, so private firms won't supply enough. This is the free-rider problem.
Governments fund public goods through taxation. In India, infrastructure, public health and basic research are partly public goods justifying state provision. Many real-world goods are 'impure', mixing public and private traits, which complicates how they are financed.
Related terms
- Fiscal PolicyFiscal policy is the government's use of taxation and spending decisions, set out mainly in the Union Budget, to influence the economy.
- ExternalitiesAn externality is a cost or benefit of an economic activity that falls on third parties not involved in the transaction, such as pollution (negative) or vaccination (positive).
- Free-Rider ProblemThe free-rider problem occurs when people benefit from a shared resource or public good without paying for it, leading to its underfunding or overuse.
- Tragedy of the CommonsThe tragedy of the commons describes how a shared, unowned resource gets overexploited because each user captures the full private gain from using more, while the cost of depletion is spread across everyone.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.