Public good
Also called: free rider problem
A public good is non-excludable (you can't stop people using it) and non-rival (one person's use doesn't reduce another's), like national defence or a lighthouse. Markets underprovide them because of free riders.
A free rider enjoys the good without paying, and if everyone does, no one pays for it. That's why public goods are usually funded by taxes.
Related terms
- Market failure: Market failure is when a free market, left alone, doesn't produce the efficient outcome.
- Externality: An externality is a cost or benefit that falls on people outside a transaction.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.