In which scenario is public provision of a good preferred due to excludability issues?

• A. Private clubs with membership fees
• B. Private roads with tolls
• C. Airline seats on a plane
• D. National defense or lighthouses where non-payers cannot be prevented from benefiting.

Answer: (D)

Public provision is preferred when the good is non-excludable, meaning you can’t realistically prevent people who don’t pay from benefiting. When you can’t exclude non-payers, private markets underprovide because individuals have little incentive to pay—the free-rider problem. National defense and lighthouses are classic examples: once the defense is up or the light is on, you can’t feasibly exclude a non-payer, and one more user doesn’t diminish the benefit to others. Because of that, the government typically supplies or funds these goods to ensure they’re provided at an adequate level for everyone. In contrast, goods that can be charged for and excluded—like private clubs, toll roads, or airline seats—can be efficiently supplied by private markets using prices to allocate resources.