It is difficult to exclude people from consuming them. Suppose a certain substance is found to cause disease, the cost of the discovery need only be borne once, and the cost of making the information available to one more person is effectively zero. One of the problems associate with public goods is called the free-rider problem. Since it is difficult to prevent people from consuming a good once it is produces, even when they don t pay for it, people can t be made to pay for its use and the private market will not produce enough of the good, or in some cases any of it at all. The market will under-produce public goods too little output will be produced at too low a price.
Information is a valuable commodity.
There are cases where one party to a transaction has more information than another party. In this case, the efficient allocation of resources will not be achieved. This occurs when one party to a transaction has both the incentive and the ability to shift costs onto the other party. A free-market system rewards certain groups and penalizes others if the market outcomes are perceived as cruel or otherwise unacceptable then society often chooses to intervene. It has generally been accepted that attempts to equalize the distribution of income are achieved at the expense of efficiency since the transfer of resources may reduce work effort and investment or real resources may be used up in the process.