Chapter 11 - Public Goods and Common Resources

11-1 The Different Kinds of Goods

• Excludability: the property of a good whereby a person can be prevented from using it.
• Rivalry in consumption: the property of a good whereby one person's use diminishes other people's use.
• Private goods: goods that are both excludable and rival in consumption.
• Public goods: goods that are neither excludable nor rival in consumption.
• Common resources: goods that are rival in consumption but not excludable.
• Club goods: goods that are excludable but not rival in consumption.

11-2 Public Goods

The Free-Rider Problem

• The free-rider problem keeps private markets from supplying public goods.
• The government believes that they can collect taxes and use the revenue to solve the Free-Rider problem.
• Free-rider: a person who receives the benefit of a good but avoids paying for it.

Some Important Public Goods

• National defense is not excludable nor rival in consumption.
• The U.S. federal government spent $744 billion on national defense in 2017.
• Both small and big governments agree that national defense is good for the public.
• Technological knowledge includes longer-lasting batteries, smaller microchips, or better digital music players.
• Patents give inventors exclusive rights to the knowledge for a period of time. People have to pay inventors to use their patented information.
• Once a theorem is proven, it enters society's general pool of knowledge that anyone has access to.

The Difficult Job of Cost-Benefit Analysis

• Cost-benefit analysis: a study that compares the costs and benefits to society of providing a public good.
• Public projects consist of building new highways…etc…
• Cost-benefit analysts find mere rough approximations on the costs and benefits of public projects.

11-3 Common Resources

The Tragedy of the Commons

• The tragedy of the Commons: a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole.
• A person's use of a common resource makes the resourceless enjoyable or special to others because common resources tend to be used more excessively.
• To reduce the consumption of a resource, the government can implement regulations or taxes.

Some Important Common Resources

• Clean air and water, and congested roads are forms of common resources.
• Fish, whales, and other forms of wildlife are common resources with great importance, too.

11-4 Conclusion: The Importance of Property Rights

• Property rights can make the allocation of resources more efficient if they're well-run and planned. This could raise the economy's well-being.