What is the difference between a public good and a private good?

The main difference between a public good and a private good lies in their characteristics and the way they are consumed.

A public good is a type of good that is non-excludable and non-rivalrous in consumption. Non-excludability means that once the good is provided, it is difficult or impossible to exclude anyone from benefiting from it. Non-rivalry means that one person's consumption of the good does not diminish its availability for others. Examples of public goods include national defense, street lighting, and public parks.

On the other hand, a private good is both excludable and rivalrous in consumption. Excludability means that the owner of the good can prevent others from using or consuming it. Rivalry means that when one person consumes the good, it reduces the amount available for others. Examples of private goods include food, clothing, and cars.

The distinction between public and private goods is important because it affects the way these goods are provided and financed. Public goods are typically provided by the government or public sector, as they are difficult to provide through the market mechanism due to the free-rider problem. The free-rider problem arises when individuals can benefit from a public good without contributing to its provision. To overcome this, governments often finance public goods through taxes or other forms of compulsory contributions.

Private goods, on the other hand, are typically provided and allocated through the market mechanism. The price mechanism helps determine the allocation of private goods, as individuals are willing to pay for them based on their preferences and ability to pay. Private goods are usually produced and distributed by private firms, and individuals can choose whether or not to consume them based on their own preferences and budget constraints.

In summary, the key difference between public goods and private goods lies in their characteristics of excludability and rivalry in consumption. Public goods are non-excludable and non-rivalrous, while private goods are excludable and rivalrous. This distinction has implications for how these goods are provided, financed, and allocated in an economy.