Public Good

Classic examples of public goods include national defence, street lighting, flood defences and public fireworks displays. Once street lights are installed, everyone walking down the street benefits, and one person's use does not leave less light for anyone else.

Public goods create a problem for private markets, called the free-rider problem. Because people can benefit without paying, many will choose not to pay. A private company would struggle to sell street lighting to individual residents, because each might wait for others to pay and then enjoy the light for free.

As a result, public goods tend to be underprovided if left to the market. This is why governments usually provide them and fund them through taxation.

Few goods are perfectly public. Some, like a free public park, can become crowded, which makes them partly rivalrous. Others, like a toll road, can exclude non-payers. Economists therefore treat public goods as one end of a range, with private goods at the other end.