•

Identify a public good using nonexcludable and non-rival as criteria

• Explain the free rider problem

•

Identify several sources of public goods

Even though new technology creates positive externalities so that perhaps one-half or two-thirds of the social

benefit of new inventions spills over to others, the inventor still receives some private return. What about a

situation where the positive externalities are so extensive that private firms could not expect to receive any of

the social benefit? We call this kind of good a public good. Spending on national defense is a good example of a

public good. Let’s begin by defining the characteristics of a public good and discussing why these

characteristics make it difficult for private firms to supply public goods. Then we will see how government may

step in to address the issue.

The Definition of a Public Good

Economists have a strict definition of a public good, and it does not necessarily include all goods financed
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