>> Most of microeconomics talks
about where rationale behavior

by individuals leads to
good outcomes for society.

We see that in supply and
demand, firm behavior,

and consumer behavior.

But there are also
plenty of cases where even

when individuals behave
rationally, their actions add

up to a bad outcome for society.

Those are called
"market failures."

Some examples are
externalities like pollution

or imperfect competition
like monopoly or oligopoly.

Another type of market
failure is public goods.

Now the first thing
to recognize is

that public goods
are not just things

that are good for the public.

Let's start by defining a
concept called "rival goods."

These are goods that can only be
used or consumed by one person.

For example if I
drink a cup of coffee,

you can't also drink
that same coffee.

If I cut down a tree, you can't
also cut that same tree down.

Many goods fall into this
category -- shoes, apartments,

library books -- but there are
also goods that are non-rival

where my using a good does not
reduce the number available

to you.

So if I watch a show on cable,

there isn't less show
for you to watch.

If I a drug company discover
a new cure that I use,

that same cure is
also available to you.

If the fire department
protects my home from fire,

there's not less fire
department left over for you.

In addition to thinking
about goods in terms of rival

and non-rival, we can also think
about goods that are excludable.

These are goods that
you can be prevented

from using if you don't pay.

So among the goods we've already
listed, the cup of coffee,

the shoes, the apartments,
the cable TV,

and the new drug are all
examples of something

that can be denied to
you if you don't pay

so they are excludable.

In contrast, the library book,
the tree if it's on public land,

and the fire department are all
goods that aren't excludable.

You aren't charged for them

and in many cases
there's no practical way

to charge for them.

Most of microeconomics --
supply and demand, consumer

and firm behavior
-- describes goods

that are both rival
and excludable.

But an interesting
thing happens for goods

that are non-rival
and non-excludable.

If somebody else pays
to provide those goods,

you get to enjoy them
because they're non-rival.

You can't be made
to pay for them

because they're not excludable.

So most people's strategy
would be to hang back,

let other people pay for
things like fire protection

or court systems, and then
enjoy them yourself at no cost.

But when everyone follows
this logic, nobody chips in.

Everyone sits around waiting
for everyone else to pay for it

so these goods are
never provided.

That dynamic is called
"free riding."

These non-rival

and non-excludable goods are
what we call "public goods."

They're goods that
if people were left

to themselves wouldn't be
provided spontaneously,

unlike cups of coffee or
shoes or even cable TV.

That's why economists agree
that for true public goods

that are non-rival
and non-excludable

like fire protection and court
systems, we need a government

to collect taxes and then
provide these services.