Public Good Characteristics

922 Words4 Pages
A public good is characterised by nonexcludability, one person using that good doesn’t prevent others from using the same good. Another important characteristic of a public good is that public goods are nonrivalrous. This means that an individual consuming a good does not reduce the utility of the same good to another individual. An example of a public good is national defence. All citizens of a country are protected by national defence, there is no way to exclude some from being protected and we can all be protected simultaneously without the value or amount of protection diminishing. Public goods create positive externalities in the market by positively affecting individuals who do not purchase the goods. This is the free rider problem where…show more content…
The forest is home to a number of animals such as rabbits and deer. As the villagers have open access to the forest, the villagers may choose to hunt the forest animals for food or clothing. It is in the interest of each villager to hunt as many animals as they want because each animal creates marginal utility for the villager. Furthermore, the benefits to the villager are greater than the cost because the cost is shared with the entire village. If this continues, there will eventually come a time when the villagers’ demand for animals will be greater than the supply of animals found in the forest. Not only will this affect the current villagers, future generations will also be affected. As seen in my example, there are severe negative externalities associated with common pool resources. To correct the market failure resulting from common pool resources, several solutions that require government intervention can be used. These include restricting the amount of the resource that can be extracted through quotas, charging individuals for how much of the common resource they use (e.g. licenses) and clearly defining property rights so as to exclude “outsiders” from using the resource. The government may also choose to privatise the resource to prevent
Open Document