Public Goods

What are the Two Characteristics of goods?

Excludability, Rivalry in consumption

Excludability

People can be prevented from using a good

Tacos, fish in a private lake, bedding are all examples of…

Excludable goods

Fish in the ocean, a highway, are all example of…

Non-Excludable goods

Rivalry in consumption

One person’s use of a unit of a good reduces

another person’s ability to use i

Fish Tacos, contested road are both examples of…

Rival Goods

Uncontested roads, clear walking paths, are examples of…

Non-Rival Goods

What are the 4 different kinds of goods?

Private Goods

Public Goods

Common Resources

Club Goods

Private Goods

Excludable and Rival

Pizza would be an example of a …. good

Private

Public Good

Non-excludable and non rival

National Defence is an example of a ______ good

Public

Common (Good) Resources

Non-Excludable and Rival In function

Deer in a forest are _____ goods

Common

Club Goods

Excludable but non-rival

Netflix is an example of a ______ good

club

What kind of good would these examples of roads be?

1. Uncongested non-toll road

2. Uncongested toll road

3. Congested non-toll road

4. Congested toll road

1. Public good

2. Club good

3. Common good

4. Private good

Free Rider

Person who receives the benefit of a good

but avoids paying for it

What are problems with free riders?

– Public goods are not excludable, so

people have an incentive to be free riders

– Prevents the private market from

supplying the goods

– Market failure

How can the government take care of a free rider problem

• If total benefits of a public good exceeds its costs

• Provide the public good

• Pay for it with tax revenue

• Make everyone better off

• Problem: Measuring the benefit is usually difficult

What/Who takes care of public goods?

Government

Tragedy of the Commons

Acting in one’s own self-interest, overuse and deplete a shared, limited resource, even though it is not in anyone’s long-term interest for that resource to be exhausted.

Tradgety of the Commons has to do with…

Common Goods which are non-excludable but rivalrous

Clean air and clean water are examples of…

Tragedy of the commons

Possible Solutions to Tragedy of the Commons

– Regulate the number of sheep per family

– Internalized the externality by taxing

sheep

– Auction off a limited number of sheep-

grazing permits

– Make land private property: divide the land

among town families

Elinor Ostrom

1. The nature of the resource

2. Recognition of resource depletion

3. Nature of the community