Chapter 11: Public Goods and Common Resources: Characteristics, Market Failures, and Government Solutions

Excludability

People can be prevented from using a good.

Excludable Goods

Goods that can prevent people from using them, such as fish in a private pond and tacos.

Not Excludable Goods

Goods that cannot prevent people from using them, such as fish in the international ocean and national defense.

Rivalry in Consumption

One person's use of a unit of a good reduces another person's ability to use it.

Rival Goods

Goods that are rival in consumption, such as tacos and laptop computers.

Not Rival Goods

Goods that are not rival in consumption, such as an uncongested road.

Private Goods

Goods that are excludable and rival in consumption, such as pizza.

Public Goods

Goods that are not excludable and not rival in consumption, such as national defense.

Common Resources

Goods that are not excludable and rival in consumption, such as fish in international waters.

Club Goods

Goods that are excludable and not rival in consumption, such as Netflix.

Free Rider

A person who receives the benefit of a good but avoids paying for it.

The Free-Rider Problem

Public goods are not excludable, leading people to have an incentive to be free riders, which prevents the private market from supplying the goods.

Market Failure

A situation where the market does not allocate resources efficiently, often due to the free-rider problem.

Active Learning 1: Categorizing Roads

A road's classification depends on whether it is congested or a toll road.

Uncongested Non-Toll Road

Classified as a public good.

Uncongested Toll Road

Classified as a club good.

Congested Non-Toll Road

Classified as a common resource.

Congested Toll Road

Classified as a private good.

Active Learning 2: Fountain Example

A scenario where neighbors value a fountain at $100 each, but only $3,000 is collected for a $7,000 cost.

Government Intervention

The government can tax each neighbor $35 to fund the fountain construction.

Free-Rider Problem

The issue that arises when individuals benefit from resources without paying for them, making private provision infeasible.

Cost-Benefit Analysis

A study that compares the costs and benefits to society of providing a public good.

National Defense

A very expensive public good costing $886 billion in 2020, universally agreed upon as a government responsibility.

Basic Research

General knowledge subsidized by the government, with difficulties in measuring benefits.

Temporary Assistance for Needy Families (TANF)

A program providing temporary income support for poor families with children.

Supplemental Nutrition Assistance Program (SNAP)

A program that subsidizes food purchases for low-income households.

Earned Income Tax Credit (EITC)

Tax rebates provided for low-wage workers.

The Tragedy of the Commons

A parable illustrating why common resources are overused due to conflicting private and social incentives.

Negative Externality

A cost incurred by a third party who did not agree to it, such as pollution from common resources.

Congestion Pricing

Using higher tolls during peak travel times to manage demand in crowded transportation networks.

Property Rights

Legal rights to use and manage resources, which can help solve market failures.

Regulations

Government rules designed to manage the use of common resources and prevent overuse.

Corrective Taxes

Taxes imposed to discourage negative externalities, such as pollution or congestion.

Public Good Provision

The government provides public goods and determines their quantity through cost-benefit analysis.

Environmental Degradation

The deterioration of the environment through depletion of resources, pollution, and other factors.

Fishing and Hunting Licenses

Regulatory measures to limit the use of wildlife resources.

Auctioning Grazing Permits

A proposed solution to manage the number of sheep grazing on common land.

Congested Roads

Roads experiencing heavy traffic, leading to negative externalities like increased travel time.

Limits on Fishing Seasons

Regulations to control the amount and timing of fishing to prevent overexploitation.

Tax on Gasoline

A tax designed to discourage driving and reduce congestion on roads.

Rival in Consumption

A characteristic of a good where one person's use reduces the availability for others.