Public Goods | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)

Complete market failure is when there is a missing market - and this happens if we rely on a free market to provide public goods.

Public goods are non-rival and non-excludable.

Non-excludable means that it is impossible to prevent someone from using the good or service. For example, it is impossible to refuse someone from using a street lamp.

Non-rival means that many people can share the benefits from the good or service. For example, if I stand under a street lamp I would not be blocking the light from reaching another person.

If goods are non-rival and non-excludable, and one person pays for the good, nobody else would choose to pay. Others would choose to free-ride.

If public goods are left to the free market, there would be a missing market because nobody firm want to sell street lighting as a service - due to a lack of profit as an incentive or motive for the producer.

The government must intervene to provide public goods for everyone but this can be funded through taxes.