Question

Explain why markets often have a difficult time producing public goods.

Answer 1

Markets often have difficulty producing public goods because of free rider problem which creates inefficiency and loss.

Public goods are those goods which are non excludable and non rivalrous.

It means that the consumption of the good cannot be reduced for other people when one person consumes it and it is available for everyone to consume even when they have not paid for it.

It will result in under production of these goods as the people who don't pay for it are still able to enjoy the benefits it offers which will lead to revenue loss and so the firm will have little incentive to produce such goods.

Example public bridge,national defence,services such as police and public water supplies are all examples of public good.