6.3 Public and Private Goods
Public goods are nonexcludable and nonrival, so free riders lead private markets to underprovide them; private goods are excludable and rival in consumption.
Classify any good with two questions. Is it excludable — can non-payers be kept out? Is it rival — does one person's use reduce what's left for others? Private goods (pizza) are yes/yes; public goods (national defense, streetlights) are no/no.
Nonexcludability creates the free-rider problem: people can consume the good without paying, so private firms can't collect revenue that covers cost and the market underprovides or skips the good entirely. That is a market failure, and it's the standard justification for government providing public goods and funding them with taxes.
The other two boxes matter too: excludable-but-nonrival goods (streaming services, uncrowded toll roads) are club goods, while rival-but-nonexcludable goods (fish stocks, common pastures) are common resources, prone to overuse — the tragedy of the commons.
Key terms for 6.3
Calling anything the government provides a 'public good.' The test is nonexcludability plus nonrivalry — public schools and toll roads fail it, and a crowded free road is rival, making it a common resource.
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free — no spam.
No spam. Unsubscribe anytime.