Public, private and merit goods

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Public Goods V/S Private Goods
And
Merit Goods
By
V.A.Chowdappa
Dept of Economics
VSK University

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CATEGORIES OF GOODS:
PUBLIC GOODS
The indivisible goods, whose benefits cannot be
priced, and therefore, to which the principle of
exclusion does not apply are called public goods.
The use of such goods by one individual does not
reduce their availability to other individuals. For
example, the national defense.

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Characteristics of Public goods
1. Non-rival in consumption: - One person’s
consumption does not diminish the amount
available to others. Once produced, public goods
are available to all in equal amount. Marginal cost
of providing the public goods to additional
consumers is ZERO.
2. Non-excludable:- Once a public good is
produced, the suppliers cannot easily deny it to
those who fail to pay. That is, those who cannot (or
do not agree to) pay its market price are not
debarred or excluded from its use.

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3. Free-rider problem: - People can enjoy the
benefits of public goods whether pay for them or
not, they are usually unwilling to pay for public
goods. This act is the so-called free-rider problem.
PRIVATE GOODS
 Private goods refer to all those goods and services
consumed by private individuals to
 satisfy their wants. For example, food, clothing, car
etc.

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FEATURES OF PRIVATE GOODS
1) Excludable: - The suppliers of private goods can very
well exclude those who are unwilling to pay.
2) Rivalry in consumption: - One person’s
consumption reduces the amount available to others.
That is, the amount consumed by one person is
unavailable for others to consume.
3) Revealed Preference: - The consumers reveal their
preferences through effective demand and market price.
These revealed preferences are the signals for the
producers to produce the goods the individuals want.

6. 6CHARACTERISTI
CS
RIVAL NON-RIVAL
EXCLUDABLE PRIVATE GOODS
CAR
PIZZA
FOOD
QUASI-PUBLIC
CABLE TV,
UNCROWDED
SWIMMING
POOL
NON-
EXCLUDABLE
OPEN ACCESS
OCEAN FISH
MIGRATORY
BIRDS
PUBLIC GOODS
NATIONAL
DEFENCE
SREET LIGHT

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 MERIT GOODS
This concept was introduced by
prof.R.A.Musgrave in 1959.
Those goods whose consumption and use are to be
encouraged are called merit goods (e.g.;
education) and goods whose consumption and use are
to be discouraged are called non-merit goods or demerit
goods (e.g., liquor, narcotic etc.) drugs Merit goods are
socially desirable goods which promote social welfare.
Merit goods are rival and excludable.

8. 8Governments provide merit goods in order
to ensure distributional justice. These are goods
which governments feel if people will under
consume or produce and therefore should be
subsidized or provided free. Examples of merit
goods are education, mid-day meals in schools,
essential food articles etc.