Distinguish between a private good and a public good

12 Nov Distinguish between a private good and a public good

A private good is one that has the characteristics of both rivalry and excludability. Since it is rival, the consumption by one would deprive the consumption by another. For instance, when a vacancy in the school is filled up, there is one place less for potential applicants, as the same place cannot be offered to someone else. Moreover, since the good is excludable, it is not prohibitively costly to confine the benefits to a selected group of people. Using the same example, a person who is not willing to pay or who does not meet the minimum grade requirement can easily be excluded from attending the school.

On the other hand, a public good is one that has the characteristics of non-rivalry and non-excludability. Examples of such goods are national defence and flood control. Non-rivalry in consumption means the consumption by one person need not diminish the quantity consumed by anyone else given the level of production. Consider the example of national defence, once an armed force is built, the same amount of protection to the citizens will not be reduced when there are new citizens. Non-excludability means it is impossible, or prohibitively costly to confine the benefits of the good once produced to selected persons. Using the same example, it is not possible to confine the benefits of protection from missile attack from people living even within miles away.

A private good is different from a public good based on the rivalry and excludability in consumption. As a public good is non-rival, this implies that marginal cost of serving an additional user is zero. The non-excludability of public good implies that free-rider problem will arise. Thus, a public good must be provided by the government. However, a private good can be provided by private enterprises as well as the government.