In Economics, there are four types of goods or four categories of goods.

The category of the

goods is defined on bases of two attributes. The two attributes are rival and excludability.
Excludability means, whether a person can be prevented from using the good. A good is rival in
consumption when one person’s use of a good reduces another person’s ability to us the good.

An example of a good that is Non-excludable is the National defense. Indian Defense offers
security and protection to all its citizens. No citizen is excluded from the services provided by
the Army, Navy and Air Force of the country. It is inefficient to exclude some people from the
service of the non-excludable good. National Defense is also an example of a non-rivalrous
good. It means that protection of one person does not mean that another person cannot be
protected.

An example of a good that is excludable is a Sandwich. The seller may prevent the customer
from procuring the sandwich, if he or she does not pay for it. A sandwich is also an example of a
rivalrous good. If one person consumes a Sandwich, another person cannot consume the same
sandwich. In a way, the customers for the sandwich are “rivals”.

The Sandwich is an example of a Private good, because it is excludable and rivalrous. Other
examples of private goods are food, clothes, cars, electronic gadgets etc. Owners of these goods
can prevent other individuals from enjoying the benefit of these goods. These goods are
generally in limited quantity. It is due to this scarcity, that Private goods are available on in
exchange of money. Some goods are non-excludable but rival. These goods are called Common
goods. Mines, fisheries, forests etc. are examples of common goods. Another example could be
a public library. No individual can prevent another individual from benefiting from the services
at a public library. Any individual can enter and browse through books that contribute to the area
of their interest. However, the seat or chair one individual occupies in the public library prevents
another individual from occupying the same chair, which makes it a rivalrous good. Goods that
are non-rival but are excludable are called Club goods. Non-payers can be prevented from
getting access to these goods. Access to club goods may be restricted and is possible only on
payment, but access of one individual to these goods, does not restrict access to another person.
An example of club goods is Cable Tv, Private Parks, and Cinemas etc. Another example that
fits the description of a Club Good is an online media service provider, like Netflix, Amazon
Prime, and Hotstar etc. One may gain access to Netflix by paying for it, which means it has the
feature of being excludable. Nevertheless, because one individual has a Netflix account, it does
not mean another person cannot have one too. Club goods are also often referred to as,
artificially scarce goods.

Public goods are non-excludable and non-rival. The benefits of Public goods, also called Social
goods are not limited to the person who pays for the good but extends to every individual.
National Defense is an example of a public good. Another example of a public good is Air
quality. If measures are taken to increase the quality of air, the improved air is available to
everyone who breathes. If one individual breathes air with improved quality, it does not mean
that the quality of air becomes poorer for the others. Pure Public goods satisfy both the
conditions- non-excludable and non-rival. On the other hand, impure public goods satisfy these
conditions only to some extent.

The production of Public goods leads to creation of positive externalities. Consumers take
advantage of these externalities, without paying for them. This is called the “free-rider” problem.
This leads to market failure. Individuals have almost no incentive to pay for the public goods
voluntarily. Many individuals believe that other individuals are contributing to the public goods
that are non-excludable and non-rival. The market failure when such assumptions are made
results in non-availability of the good or less production than required. An example is, to notice
the construction of a bridge or laying a road. Laying a road and constructing a bridge, both have
societal benefits. These benefits exceed the cost. But, this would lead to a market failure since
most individuals assume that others have contributed to laying the road or constructing a bridge.
Market failure would result in no bridge being constructed, or no road being laid.

In order to prevent the under-provision of the goods, the government steps in. Government
intervention is essential for efficient allocation of resources. Hence, goods such as bridges, dams,
roads, parks, and services of that of police, defense etc., are financed with the tax collected from
the people by the Government.

However, the difficulty does not lie in the lack of voluntary payment by individuals to avail the
public goods. The difficulty lies in deciding the type and quality that should be supplied to begin
with, and how much should the consumer pay. It is important to know how much the individual
values the benefit received. For example, benefit received from the policy adopted and the
measures taken to protect the environment exceeds the costs. Environmental quality is not traded
in the markets; hence, it is hard to estimate the value to the recipients. Many non-market
valuation techniques can be used to estimate the value. Voting by ballot must be resorted to in
place of voting by dollar bids. Since voters know that they have a say in the decision-making,
they will take personal interest to vote for their preference. Another method involves using other
markets to infer implicit values for the environment.

The topic of Public goods is of special interest in the study of economics because it influences
many other disciplines.