Why do private companies rarely provide public goods?

• A. Because public goods have high production costs that private companies cannot afford.
• B. Because public goods are non-excludable and non-rivalrous, making it difficult to charge consumers and earn profit.
• C. Because public goods always require government regulation to be produced.
• D. Because consumers do not value public goods and therefore do not demand them.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of public goods. Public goods are characterized by two main features: non-excludability (you cannot prevent people who do not pay from using the good) and non-rivalry (one person's use does not reduce availability to others).
2. Step 2: Analyze why non-excludability creates a problem for private companies. Since firms cannot exclude non-payers, they cannot easily charge consumers directly for the good, leading to the 'free rider problem.'
3. Step 3: Consider the implications of non-rivalry. Because one person's consumption does not reduce the amount available to others, there is little incentive for private firms to limit access or charge for additional users.
4. Step 4: Recognize that due to these characteristics, private companies find it difficult to earn profits from public goods, as they cannot effectively exclude non-payers or charge prices that cover costs.
5. Step 5: Conclude that this is why private companies rarely provide public goods, and why such goods are often provided by the government or funded through taxation to ensure availability.