Welcome to public goods! Sometimes markets struggle to provide things society needs, even when everyone wants them.
Think about national defense or street lighting. These have special characteristics that make private companies reluctant to supply them.
Engagement Message
Why is it hard for a private firm to charge people for national defense?
The first special characteristic is non-rivalry. When you consume a non-rival good, it doesn't reduce the amount available for others.
My listening to a radio broadcast doesn't prevent you from listening too. But eating an apple does prevent others from eating that same apple.
Engagement Message
Is watching a fireworks display rival or non-rival consumption?
The second characteristic is non-excludability. This means you can't prevent people from using the good, even if they don't pay for it.
Once street lights are installed, you can't stop non-paying neighbors from benefiting. But you can exclude people from your private movie theater.
Engagement Message
Give one example of something it's hard to stop non-payers from using?
Pure public goods have both characteristics: non-rival and non-excludable. National defense, clean air, and lighthouse beams are classic examples.
Since everyone benefits regardless of payment, individuals have incentive to "free ride" - let others pay while they enjoy the benefits.
Engagement Message
How does the free-rider problem deter firms from supplying public goods?
This creates the free-rider problem: if everyone tries to avoid paying, who will fund the public good? The market fails because voluntary payments won't cover costs.
This is why governments often provide public goods through tax funding.
Engagement Message
Name a public good your local government currently provides?
