This lesson explores the differences between public and private goods.
- Distinguish between public and private goods.
- Identify the characteristics of public and private goods.
- Discuss why public goods are important and who must provide them.
Who puts on the fireworks display in your hometown on the Fourth of July? More than likely, this service is provided by the village, town or city that you live in. Why don't private businesses provide fireworks displays? What about the military? If the government didn't provide protection through the military who would? In this lesson we will investigate what makes some goods public and other goods private.
Discuss with your class other examples of goods and services that might be considered public: parks, street lights, roads, the military and so on. What is it about these goods and services that makes them public? What characteristics do these goods and services have in common?
If you want to refresh your understanding of public and private goods, take a look at the Teachers Background Handout.
Teacher's Background Handout: With this article, teachers can refresh their understanding of public and private goods.
Teacher's Background Handout
Public goods: This site provides a definition for "public goods"
Private goods: This site provides a definition for "private goods"
Interactive Activity: This drag-n-drop activity quizzes students' understanding of the public and private goods lesson.
Drag and Drop Activity
- Excludability: the property of a good (or service) whereby a person can be prevented from using it.
- Rivalry: the property of a good (or service) whereby one person's use diminishes other people's use.
Now that we have introduced these terms, how can we use them to determine whether a good is public or private?
Are private goods excludable or rival?
Private goods are both excludable and rival. Think about a candy bar: this good is clearly excludable (you can easily prevent someone from eating one: don't give it to anybody). Candy bars are also clearly rival: If I eat a Snicker's bar, I have obviously diminished its use for anyone else.
Now, what about public goods? Are they excludable or rival?
Public goods are neither excludable or rival. Consider national defense (provided by the U.S. armed forces). Once our country is defended from foreign threats, it is impossible to stop any single person from enjoying this protection. In addition, while I am enjoying this protection provided by national defense, I am not diminishing your enjoyment of it.
There are major differences between public and private goods that can easily be understood using the ideas of rivalry and excludability. What about our original question about fireworks and lighthouses?
Both of these examples are classic cases of public goods. The benefit from either cannot be excluded (how could you stop someone from watching fireworks from their backyard or a ship captain from seeing the light?). In addition, neither one is rival. My watching of a fireworks display (or seeing the light from a lighthouse) does not diminish your enjoyment of these services.
Create a list of public and private goods. Have the students determine which ones are public and which ones are private; also have them explain their answers based on the concepts of rivalry and excludability.
Then have the students complete this Drag and Drop Activity to help them learn more about public and private goods.
For the last activity, have the students write a story in which they incorporate as many examples of public goods and private goods as they can.
“Economics can be kind of boring but this was an awesome opportunity to get my homeschooled son going because of the different examples, visuals and of course the activity.”