Private Good

Private Good
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^ Nicholson, Walter (2004). Intermediate Microeconomics And Its Application . United States of America: South-Western, a division of Thomson Learning. p. 59. ISBN 0-324-27419-X .

^ Ray Powell (June 2008). "10: Private goods, public goods and externalities". AQA AS Economics (paperback). Philip Allan. p. 352. ISBN 978-0-340-94750-0 . {{ cite book }} : CS1 maint: date and year ( link )

^ Hallgren, M.M.; McAdams, A.K. (1995). "A model for efficient aggregation of resources for economic public goods on the internet" . The Journal of Electronic Publishing . 1 . doi : 10.3998/3336451.0001.125 .

^ "Public Goods: Demand" . AmosWEB Encyclonomic WEB*pedia . AmosWEB LLC . Retrieved 23 October 2011 .

^ Malkin, J.; Wildavasky, A. (1991). "Why the traditional distinction between public and private goods should be abandoned". Journal of Theoretical Politics . 3 : 355–378. doi : 10.1177/0951692891003004001 .

^ "Rivalry and Excludability in Goods" . Living Economics . Retrieved October 22, 2011 .

A private good is defined in economics as "an item that yields positive benefits to people" [1] that is excludable , i.e. its owners can exercise private property rights , preventing those who have not paid for it from using the good or consuming its benefits; [2] and rivalrous , i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce , which can cause competition for it. [3] The market demand curve for a private good is a horizontal summation of individual demand curves. [4]

Unlike public goods , such as clean air or national defense, private goods are less likely to have the free rider problem , in which a person benefits from a public good without contributing towards it. Assuming a private good is valued positively by everyone, the efficiency of obtaining the good is obstructed by its rivalry ; that is simultaneous consumption of a rivalrous good is theoretically impossible. The feasibility of obtaining the good is made difficult by its excludability , which means that is people have to pay for it to enjoy its benefits. [5]

One of the most common ways of looking at goods in the economy is by examining the level of competition in obtaining a given good, and the possibility of excluding its consumption; one cannot, for example, prevent another from enjoying a beautiful view in a public park, or clean air. [6]

An example of the private good is bread : bread eaten by a given person cannot be consumed by another (rivalry), and it is easy for a baker to refuse to trade a loaf (exclusive).

To illustrate the horizontal summation characteristic, assume there are only two people in this economy and that:

As a result, a new market demand curve can be derived with the following results:

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Private good is a product or service produced by a privately owned business and purchased to increase the utility , or satisfaction, of the buyer. The majority of the goods and services consumed in a market economy are private goods, and their prices are determined to some degree by the market forces of supply and demand . Pure private goods are both excludable and rivalrous, where excludability means that producers can prevent some people from consuming the good or service based on their ability or willingness to pay and rivalrous indicates that one person’s consumption of a product reduces the amount available for consumption by another. In practice, private goods exist along a continuum of excludability and rivalry and can even exhibit only one of these characteristics.
Privatizing prisons (making them private goods) is widely debated. Some argue private facilities reduce overpopulation in underfunded state prisons, making prisons safer, while offering inmates new and innovative programs to reduce recidivism. Others argue that privatization is costly and exploits employees and prisoners for corporate gain. For more on the debate about privatizing prisons, visit ProCon.org .
private good , a product or service produced by a privately owned business and purchased to increase the utility , or satisfaction, of the buyer. The majority of the goods and services consumed in a market economy are private goods, and their prices are determined to some degree by the market forces of supply and demand . Pure private goods are both excludable and rivalrous, where excludability means that producers can prevent some people from consuming the good or service based on their ability or willingness to pay and rivalrous indicates that one person’s consumption of a product reduces the amount available for consumption by another. In practice, private goods exist along a continuum of excludability and rivalry and can even exhibit only one of these characteristics.
The absence of excludability and rivalry introduces market failures that ensure that some goods and services cannot be efficiently provided by markets. Public goods, such as streetlights or national defense, exhibit nonexcludable and nonrivalrous characteristics. In a private market economy, such goods lead to a free-rider problem, in which consumers enjoy the benefits of the good or service without paying for it. These goods are thus unprofitable and inefficient to produce in a private market and must be provided by the government.
Inefficiency in the production and consumption of private goods can also arise when there are spillover effects, or externalities. A positive externality exists if the production and consumption of a good or service benefits a third party not directly involved in the market transaction . For example, education directly benefits the individual and also provides benefits to society as a whole through the provision of more informed and productive citizens. Private markets will underproduce in the presence of such positive externalities because the costs of production for the firm are overstated and the profits are understated. A negative externality exists when the production or consumption of a product results in a cost to a third party. Air and noise pollution are commonly cited examples of negative externalities. When negative externalities are present, private markets will overproduce because the costs of production for the firm are understated and profits are overstated.
A number of fairness and justice issues arise with respect to private goods. As excludability implies that consumers will get different amounts of goods and services, a complete reliance on private markets is unacceptable for basic necessities, such as food and safe drinking water, especially when there is wide disparity in income distribution. Similarly, although health care may be provided more efficiently as a private good, the poor and those without health insurance may be unable to afford it. Many argue that access to health care is a human right and that it should thus be provided by the government as a public good. Issues such as these illustrate the trade-off between efficiency and equity and highlight the need for public policy to determine which private goods should be public goods.

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Private Good: Definition & Examples

Private goods are resources that are exclusively purchased by an entity or an individual. Learn about the definition of private goods, their characteristics, and look at some examples of private goods.

Updated: 10/14/2021

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Private Good: Definition & Examples

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