A Level Economics AQA Practice Exam

What characteristic defines a public good?

1. Excludable and rivalrous in consumption

2. Neither excludable nor rivalrous in consumption

3. Excludable but not rivalrous in consumption

4. Rivalrous but not excludable in consumption

The correct answer is: Neither excludable nor rivalrous in consumption

A public good is best defined by its characteristics of being neither excludable nor rivalrous in consumption. This means that individuals cannot be effectively excluded from using the good, and one person’s consumption of the good does not reduce its availability for others. For example, consider national defense: everyone benefits from it, and one person using it does not diminish another person's ability to use it. Because of these characteristics, public goods often lead to free-rider problems, where individuals may benefit from the good without contributing to its provision, thereby complicating those goods' funding and maintenance. This definition differentiates public goods from private goods, which are excludable and rivalrous, meaning they can be limited to certain individuals and one person’s consumption decreases the quantity available for others. Understanding these characteristics is crucial in public policy and economic theory, especially in discussions regarding the provision and funding of services that benefit society as a whole.