Explain the concept of public goods.

Public goods are goods or services that are non-excludable and non-rivalrous in nature. Non-excludability means that once the good or service is provided, it is impossible to prevent anyone from benefiting from it, regardless of whether they have paid for it or not. Non-rivalry means that the consumption of the good or service by one individual does not reduce the amount available for others to consume.

Public goods are typically provided by the government or public sector as they are not efficiently provided by the market due to the free-rider problem. The free-rider problem occurs when individuals can benefit from a public good without contributing to its provision. This leads to underproduction of public goods in the market.

Examples of public goods include national defense, street lighting, public parks, and clean air. These goods are essential for the overall well-being of society and cannot be easily provided by private firms due to the inability to exclude non-payers and the lack of rivalry in consumption.