Why public goods aren’t produced by free markets: understanding non-rivalry and non-diminishability

Public goods: the quiet backbone of modern life

Picture this: you’re walking down a street at night, and the lamps bathe the pavement in a steady, reassuring glow. You can linger, chat with a friend, or simply stroll home without worrying about the dark. Who provides that light, and why doesn’t the market just take care of it on its own? This is the heart of a classic economics puzzle: some things the market isn’t very good at delivering, even though we all want them.

Public goods, in a sentence, are goods and services that everyone can use without preventing others from using them, and that don’t run out as more people enjoy them. That seems simple, but it’s one of those ideas that reveals big gaps between what markets do well and what societies value.

Non-rivalry and non-diminishability: what makes a public good special

Let me explain with two tidy ideas.

• Non-rivalry: one person’s enjoyment doesn’t cut into another person’s enjoyment. When a city installs a good public water fountain or a bright streetlight, your use doesn’t stop your neighbor from using it too. You both benefit, without a trade-off in quantity.

• Non-diminishability (non-excludability often gets discussed in the same breath): you don’t have to pay to keep benefiting once the good exists. In theory, lighting up the streets doesn’t get used up the moment someone else benefits. The same goes for a defense system or a clean environment—your use doesn’t exhaust the good for others.

Now contrast that with private goods, which are both rival and excludable. If you eat an apple, no one else can enjoy that very apple. If a gym membership exists, you typically have to be allowed in and you pay for the access. These traits—rivalry and excludability—make markets comfortable: price signals help allocate resources. Public goods, however, upset that neat market logic.

Why markets tend to under-provide public goods

The core snag is the free-rider problem. If I can enjoy a public good without paying for it, I’ll probably hope someone else covers the bill. After all, I still reap the benefits even if I don’t contribute. Since producers can’t easily charge each user for access, they have little incentive to fund the good in the first place. And when everyone thinks that way, the good gets under-produced.

Economists love a simple equation for this: social value often exceeds private value for these goods, but private markets can’t capture that gap efficiently. The result is under-provision—often leaving a city with dimmer lights than it needs, or a defense shield that could be stronger but isn’t funded fully.

The government’s comparative advantage here isn’t magic; it’s a blunt but effective tool: taxes. By pooling resources through the state, societies can fund street lighting, defense, and other public goods even when individual market players wouldn’t bother. It’s not a flawless system, but it’s a practical one that helps avoid a gloomy, underlit world.

Examples that feel almost universal

Some public goods are so obvious we hardly notice them—until they’re missing.

• Street lighting: one neighborhood’s lights don’t stop others from enjoying safety and visibility. Everyone benefits from a lit street, even if they didn’t pay directly for a particular lamppost.

• National defense: you’re protected whether you contribute or not, and the protection doesn’t run out as more people “join.”

• Lighthouses and certain kinds of information infrastructure: think of a beacon that helps sailors navigate or a core digital standard that makes online communication seamless. Non-rivalry means one sailor or one user doesn’t diminish the beacon for others.

• Clean air and climate resilience (to some extent): many benefits flow to all, not just to whoever pays first. This is where externalities and public policy intersect.

Public goods in the real world aren’t always perfectly non-excludable or non-rivalrous in every situation. Some goods are “quasi-public” or public in intent but have features that allow for partial charging or exclusion. The important takeaway for HL economics is the intuition: when it’s hard to charge users, markets under-provide.

Merit goods and demerit goods: a quick contrast

You’ll hear terms like merit goods and demerit goods alongside public goods in your studies. They’re not the same thing, though they sometimes intersect in policy debates.

• Merit goods are things society believes people should have, even if individuals don’t value them highly or can’t see the benefits right away. Education and basic healthcare are classic examples. The market might undersupply them because people don’t fully value the long-term benefits—or because information gaps and externalities distort decisions.

• Demerit goods are the opposite: goods society deems harmful (think cigarettes or certain pollutants) and may want to discourage consumption of. Here, governments step in with taxes, regulations, or bans to curb use.

Public goods, by contrast, are defined by their physical characteristics (non-rivalry and non-diminishability) rather than by judgments about their value or harm. The policy implications are different, even when a government might think about funding merit goods or discouraging demerit goods at the same time.

A helpful lens for HL thinkers

If you’re tackling a question about public goods, here’s a practical way to frame it:

• Identify the two key characteristics: Is the good non-rival? Is it non-excludable?

• Check the incentive story: Would a private producer be able to charge users? If not, expect market failure.

• Consider policy responses: Is there a role for the government’s tax-and-spend approach, or could private provision with a twist (like public-private partnerships) work better?

• Differentiate from other goods: Could it be a merit or demerit good? How would that shift the policy reasoning?

A quick, approachable checklist you can carry in your notes

• Is consumption by one person not reducing availability for others? If yes, keep going.

• Can producers easily charge each user? If yes, it’s less likely to be a pure public good.

• Does everyone benefit without reducing anyone else’s benefit? If yes, you’re likely in public goods territory.

• Do externalities or free-rider issues loom large? If so, expect a strong case for government involvement.

A small, practical digression you might enjoy

Public goods aren’t just about street lights. In today’s digital era, knowledge itself acts like a public good in many respects. Open-source software, basic scientific knowledge, and even some online platforms provide benefits without diminishing others’ ability to use them. The catch? Some of these digital public goods rely on ongoing funding (think of a contributor network or a foundation) to keep improving. It’s a neat reminder that the old textbook examples still show up in new shapes, especially when technology complicates how goods are produced and consumed.

Why this matters for IB Economics HL learners

HL economics loves nuance. You’ll be asked to connect theory with policy and to reason about what governments should do when markets fail. Public goods sit at the intersection of efficiency, equity, and practical governance. You’ll want to articulate:

• Why the market on its own can under-provide goods that don’t fit neatly into price signals.

• How taxes and public spending can correct that market failure, while also considering potential downsides like tax burden and government inefficiency.

• How to distinguish public goods from similar-sounding categories and why the distinction matters for policy design.

A small sample question (with a guided answer)

Question: Which type of goods would not be produced by the market due to their characteristics of non-rivalry and non-diminishability?

A) Private goods

B) Merit goods

C) Public goods

D) Demerit goods

Answer: C) Public goods. Public goods are defined by non-rivalry and non-diminishability. One person’s use does not reduce others’ ability to use the good, and consumption doesn’t deplete the good’s availability. Because it’s hard to charge users directly, private markets tend to under-provide these goods, creating a case for government provision or subsidy. Private, merit, and demerit goods don’t share both of these core characteristics to the same extent.

If you want to arrive at the same answer with confidence, practice spotting the two defining traits and watching for the free-rider problem. It’s less about memorizing a list and more about recognizing a pattern: when the market can’t easily price access, it’s a hint that public provisioning might be the right move.

Connecting to bigger ideas in HL economics

Public goods aren’t just a neat classification. They illuminate why markets sometimes fail and why societies organize around collective action. They also invite you to think about efficiency beyond the simple supply-and-demand curve. In more advanced work, you’ll explore how the Samuelson condition—summing marginal benefits across individuals to meet marginal cost—guides the efficient provision level of a public good. It’s a bit mathy, but the intuition remains accessible: the social value of the last unit should equal its cost to provide.

A final thought to carry forward

Public goods are the steady engines behind safe streets, clean air, and shared knowledge. They remind us that not every valuable outcome comes with a price tag that markets can read. Sometimes the right move is collective funding, coordinated for the common good. And sometimes the best way to understand a policy debate is to return to those two lighthearted questions you started with: who benefits, and who bears the cost?

If you’re curious to connect these ideas to current events, think about how cities today decide what to fund—whether it’s upgrading street lighting with energy-efficient LEDs, maintaining flood defenses against climate risk, or investing in broadband access as a public utility. The language of public goods isn’t just academic; it’s a practical lens for imagining how societies choose to steer collective outcomes in a complex world.

So next time you see a glowing streetlamp or hear about new public infrastructure, you’ll have a clearer sense of why those things often sit comfortably in the “public goods” category—and why the market on its own wouldn’t magically stitch them into place. The good news is that this isn’t a dead-end topic; it’s a living, breathing part of how economies and communities evolve together. And that makes it pretty fascinating to study, don’t you think?