Chapter 19

Excludable

The idea that sellers can prevent its use by those who have not paid for it

Excludability

Allows owners to set an enforceable price on a good

Rivalry

The idea that one person’s consumption of a good prevents or decreases others’ ability to consume it

Private goods

Goods that are both excludable and rival

EX: clothes, house, phones

Public goods

The opposite of private goods, neither excludable and rival

EX: parks, local security

Common resources

Not excludable but are rival

EX: fish, stocks

Artificially scarce goods

Excludable but not rival

EX: private parks, Satellite TV

Free-rider problem

When a good isn’t easily excludable the value people are willing to pay for it won’t necessarily reflect the real value they place on it

EX: Someone playing music on the corner for money

What’s the impact of the free-rider problem?

Leads to market failure because non-excludability will cause the undersupply of a public good

How can undersupply be solved?

• social norms

• Assign property rights

• Make a person responsible for the provision of a certain good/service

Tragedy of the commons

The depletion of a common resource due to individuals rationing but collectively being inefficient in overconsumption

• Non-excludability + Rivalry