Summary The distinction between public and private goods was first made in the late 18th century Latest Verified Review 2023 Practice Questions and Answers for Exam Preparation, 100 Correct with Explanations, Highly Recommended, Download to Score A+

The distinction between public and private goods was first made in the late 18th century Latest Verified Review 2023 Practice Questions and Answers for Exam Preparation, 100 Correct with Explanations, Highly Recommended, Download to Score A+ The distinction between public and private goods was first made in the late 18th century, when Adam Smith (1994 [1776] p. 779) noted the existence of certain products "which though they may be in the highest degree advantageous to a great society are, however, of such a nature that the profits could never repay the expenses to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect." Thus Smith, though an ardent advocate of the market, recognized that it does not solve all problems. Moreover, he concluded that because the market fails to provide public goods, government must do so. Ever since, public goods have been an intriguing issue in economic theory. In addition, debates on what should be provided and who should pay have been central to the political economy of public finance. This is not surprising given that such debates involve issues related to distribution and the balance between states and markets. Public goods create challenges because their benefits are not limited to a single consumer or group of consumers-as with private goods-but are available to all. Consumption of private goods is rival, while consumption of public goods (at least pure public goods) is nonrival. This distinction initially guided two types of analysis of public goods. First, conditions for their efficient provision were shown to differ from those for private goods. In the 1880s marginal utility theory asserted that provision of both public and private goods should equate costs and benefits at the margin.