Discuss the key characteristics of public goods and how they differ from private goods

The key differences between public goods and private goods are:

1. Excludability: The public goods are non-excludable in nature whereas private goods are excludable. By excludability, we imply that a person cannot be excluded from consuming the good if he/she does not pay for it.

2. Rivalry: The public goods are non-rival in nature whereas the private goods are rival. Goods are considered to be rival if consumption by one individual reduces the availability of the good for others to consume.

3. Externality: There is generally a high positive externality associated with the production and consumption of public goods. This positive externality generated by the public goods generally does not internalise in the market outcomes, as a result of which the market fails to provide such goods. The private goods on the other hand may or may not have externalities associated with their consumption and production.

4. Free Rider Problem: Since the public good is non-excludable and non-rival in nature, it exhibits free-rider problem in the consumption of the goods. Whereas private goods being excludable in nature, do not exhibit the free-rider problem.