Sunday, June 24, 2018

Public Goods and Private Goods | Import & Export

Public Goods and Private Goods

Just as private sector economics deals with the wants and their satisfaction of household and firms, public sector economics, more commonly called public finance, deals with the question of collective wants and their satisfaction. The objective of both private sector economics and public sector economics is similar. 

Public Goods and Private Goods

Private sector economics aims at maximizing satisfaction through the efficient use of available resources: likewise, public sector economics of public finance aims at maximizing social welfare or social benefit by efficient use of social goods. The distinction between public goods and private goods is important in the study of public finance, for the latter is intimately connected with the theory of social goods and the study of collective wants.

Private Goods-

Private goods refer to all those goods and services which are consumed by people to satisfy their personal and private wants or needs. They relate to articles of food, clothing, shelter, recreation, transportation, communication etc. these goods are priced in the market on the basis of their cost of production on the side and the nature of demand on the other. All those who want them and are willing to pay the market price will buy them. 

Those who do not want these goods or who are not in a position to pay for them will be excluded from the consumption of these goods. In other words, there is no consumption that everyone will have to buy them. Thus the distribution of these goods is based on effective demand and market demand. As a result, only those who do demand the private goods will pay for their cost of production on a voluntary basis.  Private goods have the following characteristics:


Private goods are divisible in the sense that price mechanism divides people into two groups, viz., those who want to consume and those who do not. Also, private goods may be divided into small units. So these are divisible in nature.

Rival in consumption-

According to this principle, private goods yield satisfaction only to the person who consumes the goods. It is denied to others; only the person who drinks a cup of tea, for example, benefits from the consumption of tea and tea consumed by one person cannot be consumed by anyone else. Thus private goods are said to be rival in consumption.

Exclusion principle-

According to Exclusion principle, those who do not pay the market price for goods are excluded from their consumption.

Public Goods-

Private economics is considered with the activities of the individual that are directed towards the satisfaction of individual wants. Public finance studies the production activities of the state as directed towards the satisfaction of public wants. The issue involved in this study are the choice of the public services which are to be produced and the determination of their respective shares and the distribution of the cost among the consumers, etc. therefore, the core of fiscal theory addresses the question of what public services should be provided by the public sector how much.

Defense, education, public health, infrastructural facilities like power, transportation, and communication etc are the example of collective wants. Goods and services produced to satisfy collective wants are known as social goods. These goods are produced hand supplied by the society to meet its collective wants for increasing social welfare. These goods are supplied by the country to all its citizens but the degree of benefit a person derived with depending upon the use he can put it to.

Public goods have the just opposite qualities. Public goods are goods that would not be provided in a free market system because firms would not be able to adequately charge for them.

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