Public goods are economic products that are consumed collectively, like highways, sanitation, schools, national defense, police and fire protection. All members of society should theoretically benefit from the provision of public goods but the reality is that some need them more then others. Economists generally agree that pure public goods are properly provided by government and paid for by taxes. The reason the government provides public goods is to resolve the issue of what economists call ''externalities. '' An externality is a cost or benefit...
Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems, and street lighting. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income. Governments pay for the goods and services they use or provide by taxing or borrowing from people. Public goods contribute to a mutual awareness of persons and to a type of exchange among persons that is less demanding than mutual recognition, yet which is nevertheless a form of connecting with each other which is important for the citizenry.
Buyers do not directly pay for public goods (although they often pay for them indirectly, such as through taxes) nor do sellers provide them, since they receive nothing for the provision, so there is a market failure by private markets in allocating resources to produce public goods. A public good has two key characteristics: it is nonexcludable and nonrivalrous. Nonexcludable means that it is costly or impossible for one user to exclude others from using the good. Nonrivalrous means that when one person uses the good, it does not prevent others for using it. According to the theory of public finance built under the “social welfare function” maximisation principle (Atkinson and Stiglitz, 1980), governments must fiscally supply “public goods,” i.e., the goods that have a complete or very important indivisibility: so that rivalry in consumption and exclusion of those who do ... Other public goods problems can be solved by defining individual property rights in the appropriate economic resource. Cleaning up a polluted lake, for instance, involves a free-rider problem if no one owns the lake. The benefits of a clean lake are enjoyed by many people, and no one can be charged for these benefits. Public goods are those that are both non-excludable and non-rivalrous. IN other words, the supplier cannot prevent people from using the good, nor will its consumption prevent others from accessing it. Such examples include: defence, policing, and streetlights.
