Public Goods:

Most of the economic theory that you have studied up till now is concerned solely with private good. These goods have the property that if one person consumes a particular good, it is not available to others for consumption. For example, the eating of an apple by owe individual.

Certain goods do not have this property. Consider, for example, street lights. The amount of street light in a given area is fixed - all the people in the street have the same potential consumption. Furthermore, consumption of streetlight by one person does not reduce the supply available for other individuals. Goods of these types are called public goods; other examples are knowledge, national defense, and clean air and so on.

Definition: A public good is a commodity which use of a unit of the good by one urgent does not preclude its use by other agents. Unlike private goods, public goods are not consumed by economic agents individually but used collectively by society. Everyone can simultaneously obtain benefits from them .The characteristic that enjoyment of a public good by one individual does not reduce its availability to others is known as non-rivalry. Many natural resources or ecosystem services are to some extent "public" in this sense. The global climate is the purest example of a public good. The private provision of public goods generates a special type of externality: if one individual provides a unit of a public good, all individuals benefit. As a result, private provision of public goods is typically Pareto inefficient.

A distinction can also be made according to whether exclusion of an individual from the benefits of a public good is possible. For private goods, exclusion is automatic through the use of price mechanism. The price mechanism ensures that consumers do not consume a good unless an appropriate price has been paid. But for public goods, excludability may or may not be there. Two factors play a major role in excludability. One is the cost of exclusion and the other is the technology of exclusion. Sometimes it is technically not possible to exclude a target group of consumers from a particular good, for instance, clean air.  It is not possible to electively target who is to breathe it. Even when exclusion is physically possible, it may be prohibitively expensive to administer compared to the gains from it. For example, cost of fencing of a vast open access region could be much larger than the benefits from it. Exclusion will exist only when there are low-cost ways of excluding. A toll tax, for example, is a mechanism for excluding individuals from the use of a highway bridge. The characteristic of having no effective way of excluding individuals from the benefit of the good, once it comes into existence, is known as non-excludability.