3 The market may have difficulty supplying and allocating certain types of products and services, such as 'public goods'. Public goods are those that are 'non-rival' or 'non-excludable' when used or consumed.
❑ 'Non-rival' means that the consumption of the good by one person does not prevent someone else using or consuming that good. Clean air is an example of a non-rival good.
❑ 'Non-excludable' means that if a public good is made available to one consumer, it is effectively made available to everyone. National defence is an example of a non-excludable good.
4 Non-excludability can give rise to a problem known as 'free-riding'. This is when some consumers fail to pay for the provision of the public good because they expect others will do so. This implies that the returns to potential suppliers will be less than society as a whole would be willing to pay collectively. So a market solution would imply too little public goods being produced to be socially optimal.