Market failure and public goods

Markets fail when private decisions ignore effects on others or when goods cannot be priced normally. A public good is non-rival (one person's use does not reduce another's) and non-excludable (nobody can be kept out): national defence and street lighting are examples. Because users cannot be excluded, each person has an incentive to free-ride — enjoy the good without paying — so private markets underprovide it and government provision is the usual answer. Worked example: two people each value a street light at 60, so total value is 120; if it costs 100, providing it is efficient, but neither will voluntarily pay 100 alone, so without coordination it is not provided.