What Are Public Goods?

Believe it or not, we receive free goods and services every day! We're just so accustomed to them that we don't often notice. For example, when you
relax in a cool cafe on a hot summer day, you are receiving the benefit of air conditioning that you are not paying for. This is an example of a public
good. Public goods are products or services we all use. Because we all use them, each of us cannot be charged individually for them. The café you
enjoy couldn't really put a number on how much air conditioning you enjoyed during your visit, so the owners cannot fairly charge you for it.
Public goods are typically financed by business owners or the government through tax revenues. When a public good is consumed, the amount left for
others to consume is not reduced, and it cannot be withheld from those who are unable to pay for it. For example, when you enjoy the air conditioning
in a café, there is not less air conditioning for others to enjoy. There is no competition to provide public goods because they are supplied to everyone.
The police force is a good example of this. When we feel unsafe because we have heard strange noises late at night, we do not select which company
to call. We simply call the police. Because there is no competition among producers and providers for public goods, they are referred to as non-
rivalrous and non-excludable. Non-excludable means that no one can be denied the service. For example, anyone who feels unsafe can call the
police.

Social Goods
Social good is typically defined as an action that provides some sort of benefit to the general public. In this case, fresh water,
education and healthcare are all good examples of social goods. However, new media innovations and the explosion of online
communities have added new meaning to the term. Social good is now about global citizens uniting to unlock the potential of
individuals, technology and collaboration to create positive societal impact.

A private good is a product that must be purchased to be consumed, and its consumption by one individual prevents another
individual from consuming it. Economists refer to private goods as rivalrous and excludable.

Mixed Goods
Private goods are goods that are rivalrous and excludable. An interesting half-way house
between a private and a public good is a "mixed good". A mixed good is like a private good in
that it is rivalrous and excludable, but it provides significant non-rivalrous, non-excludable
external benefits for which preferences are not revealed by the market mechanism. Examples
are (a) health-care; (b) education; (c) public transport; (d) refuse collection and (e) fire-service.
Let us illustrate this in the case of education. When a person is educated he/she receives a
benefit from this, which is expressed in terms of higher earnings and improved job prospects.
However, the community as a whole also benefits from the individual's education, in that
his/her productivity is enhanced, which is good for everyone. The balance between private and
public benefit varies, and there is debate in each case - that is, it is not easy to determine the
public benefits for a good for which private preferences can be revealed by the market
mechanism.

Exclusion principle

 In economics, the exclusion principle states "the owner of a private good may
exclude others from use unless they pay."; it excludes those who are unwilling or
unable to pay for the private good, but does not apply to public goods that are
known to be indivisible: such goods need only to be available to obtain their benefits
rather than purchased

Allocation
 the action or process of allocating or distributing something.

an amount or portion of a resource assigned to a particular recipient.

Allocation

The first major function of fiscal policy is to determine exactly how funds will be
allocated. This is closely related to the issues of taxation and spending, because the
allocation of funds depends upon the collection of taxes and the government using that
revenue for specific purposes. The national budget determines how funds are allocated.
This means that a specific amount of funds is set aside for purposes specifically laid out
by the government. This has a direct economic impact on the country.
Fiscal instruments:
Some fiscal instruments, such as general income or sales taxes, are based
fundamentally on the ability- to-pay principle: individuals, households or businesses with
adequate wealth or income or with the ability to generate wealth or income are taxed.

Government activity and policies have a direct impact on long-run growth. It can invest,
and operate through monetary and fiscal policy.
LEARNING OBJECTIVE

 Discuss the long-run implications on growth from government policies

KEY POINTS

 Long-run growth is the increase in the market value of goods and services produced by an economy over a period of time.
 The government may choose to invest in projects that are associated with long-term growth, such as infrastructure.
 Monetary and fiscal policy are used to regulate the economy, economic growth, and inflation so that long-run growth is possible.
 Government activities used to improve long-run growth include stimulating economic growth, enacting monetary policies, fixing
the exchange rates, and using wage and price controls.