Question

What are the two key characteristics of public goods?

Short answer

The two key characteristics of public goods are non-rivalry and non-excludability. Non-rivalry means that one person's consumption of the good does not reduce the amount available for others, while non-excludability means individuals cannot be effectively excluded from using the public good, regardless of whether they contribute to its provision or not.

Step-by-step solution

Definition of Public Goods

Public goods are goods that are both non-excludable and non-rivalrous. This means that individuals cannot be effectively excluded from using the good, and use by one individual does not reduce the availability of the good for others. Now, let's discuss each of these characteristics in detail.

Non-rivalrous

A good is non-rivalrous when one person's consumption of the good does not reduce the amount available for others to consume. In other words, the good can be used by multiple individuals simultaneously without any depletion or loss of quality. Examples of non-rivalrous goods include public parks, streetlights, and clean air. Since access to these goods does not decrease through use, they often do not have a direct cost tied to their consumption and are made available to everyone.

Non-excludable

A good is non-excludable when it is not possible to prevent someone from enjoying its benefits once the good is provided. For public goods, this means that once they are produced, they are available to everyone, regardless of whether they have contributed to the cost of providing them or not. This often leads to a free-rider problem, where people may choose not to contribute towards the cost of providing the public good, yet still enjoy its benefits. Examples of non-excludable goods include national defense, public fireworks displays, and clean air. In summary, the two key characteristics of public goods are non-rivalry and non-excludability, which make them different from private goods that can be consumed exclusively and are subject to competition.