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Differences Between Private Goods and Public Goods

Question

Use examples to illustrate the difference between private goods and public goods and explain why only private goods will be supplied in a free market economy. [8]

Category:

Market Structures and Competition

[CIE AS level May 2016]

Preview Answer


Step ➊ : Define 'private goods' and 'public goods' in the introduction. (Knowledge and understanding)

Private goods are very different from public goods. Private goods are goods bought and consumed by individual consumers or firms for their own benefit. Examples include food, clothes and textbooks. A public good is a product that one individual can consume without reducing its availability to others and from which no one is deprived. Examples of public goods include national defence, sewer systems, and lighthouses. As those examples reveal, public goods are almost always publicly financed and will not be supplied by the free market.


Step ➋ : Explain the differences between public goods and private goods.

There are several differences between public goods and private goods.

2.1 Private goods are excludable whereas public goods are non-excludable.

It is possible to exclude or prevent some people from using a private good. This is normally done by charging a price. If the price is not acceptable, then that good will not be consumed. Once one person has purchased a private good, it cannot be consumed by others. Public goods are non-excludable: once the good has been provided for one consumer, stopping all other consumers from benefitting from the good is impossible.

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