Government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumers and producers. Examples of such goods are national defence, roads, government administration etc. which are referred to as public goods.
Public goods, as distinct from private goods, are collectively consumed.Two important features of public goods are, firstly, they are non-rivalrous in that one person can increase her satisfaction from the good without reducing that obtained by others. For example, if a person eats chocolate or wears a shirt, these will not be available to others. It is said that this person’s consumption stands in rival relationship to the consumption of others. However, if we consider a public park or measures to reduce air pollution, the benefits will be available to all. One person’s consumption of a good does not reduce the amount available for consumption for others and so several people can enjoy the benefits, that is, the consumption of many people is not ‘rivalrous’.
Secondly, they are non-excludable, and there is no feasible way of excluding anyone from enjoying the benefits of the good. For example, in the case of private goods anyone who does not pay for the goods can be excluded from enjoying its benefits. If you do not buy a ticket, you will not be allowed to watch a movie at a local cinema hall. However, in case of public goods, there is no feasible way of excluding anyone from enjoying the benefits of the good.
These make it difficult to collect fees for their use and private enterprise will in general not provide these goods. Hence, they must be provided by the government.
| Basis | Public Goods | Private Goods |
| Meaning | Public goods are the ones which are provided by nature or the government for free use by the public. | Private goods are the ones which are manufactured and sold by the private companies to satisfy the consumer needs and wants. |
| Provider | Nature or government | Manufacturers i.e. entrepreneurs |
| Consumers | Rich and poor are treated equally | Preference to rich consumers |
| Availability | Readily available to all | Reduces with each consumption |
| Quality | Remains constant | Varies with ability to buy |
| Decision | Social Choice | Consumer’s Decision |
| Opportunity Cost | No | Yes |
| Free Rider Problem | Yes | No |
| Rivalry | Non-Rival | Rival |
| Excludability | Non-Excludable | Excludable |
| Demand Curve | Horizontal | Vertical |
| Examples | Public Transport, Roads, Dams and Rivers | Clothes, Cosmetics, Electronic Products and Food. |