Which of the following is the defining characteristic of

Solution

A pure public good has two defining characteristics: • Non-Rivalry in Consumption (Option C): Consumption by one person does not diminish the availability of the good for others (e.g., a lighthouse beam, national defense). This leads to the marginal cost of providing the good to an additional user being zero (not non-zero as in A). • Non-Excludability (Opposite of B): It is impossible or prohibitively costly to prevent people from consuming the good once it has been provided (e.g., a non-paying resident cannot be excluded from national defense). The Free-Rider Problem—where individuals benefit from the good without paying—is a direct consequence of the Non-Excludability property. However, the question asks for the defining characteristic of the public good that leads to the problem. The inefficiency (market failure) is driven by the fact that since consumption is non-rival (C), the efficient price (Marginal Cost to the user) should be zero. Because individuals cannot be excluded (non-excludability), they have no incentive to pay (free-ride), and since the efficient price is zero (due to non-rivalry), the private market will under-supply the good. Non-rivalry (C) is the characteristic that determines the efficient level of provision, while non-excludability leads to the non-payment at this efficient price. Of the options, Non-rivalry (C) is a core, unique feature of the good itself, and is thus the intended primary characteristic of the pure public good, distinguishing it from rival private goods.