Market failure due to lack of public goods

Excludability – The ability to prevent people from using a good or service. A good is excludable if people can be prevented from consuming it (e.g., paid streaming services) and non-excludable if no one can be stopped from using it (e.g., streetlights).

Non-excludable – A good or service that is available to everyone, meaning no one can be prevented from using it, even if they don’t pay (e.g., public parks, national defense). 

• It is not necessary that people cannot be excluded, but it is just so hard and so expensive that it’s just not going to happen. 

Rivalry [subtractability] – A characteristic of a good where one person’s use reduces the amount available for others (e.g., food, seats in a stadium). Non-rival goods can be used by multiple people without depletion (e.g., a YouTube video, national defense).

• Most tangible goods are rivalrous. 

When does it become more expensive to supply something?

• When considering "When does it become more expensive to supply something?", it often depends on the nature of the goods or service. For instance, some goods may require additional infrastructure or resources to accommodate more users. If a service is non-rivalrous, like a highway, it can initially support many users without additional costs. However, as more people use it, the marginal cost of providing that service can increase due to congestion or wear and tear, making it more expensive to supply to additional users

Does it become more valuable [or useful] as more people use it? 

• On the other hand, regarding whether something becomes more valuable as more people use it, the answer can vary. For example, a phone has little value if you're the only one who owns one, but its value increases as more people adopt it, creating a network effect. Conversely, some goods, like beautiful views or beaches, can become less valuable as more people use them, due to overcrowding diminishing the experience. 

In summary, the cost of supplying a good can increase with demand, particularly for non-rivalrous goods when they reach capacity. Meanwhile, the value of a good can either increase or decrease based on user adoption and the nature of the good itself.

Property rights 

• Property rights refer to the legal rights to own, use, and transfer resources, goods, or property. These rights determine how resources are allocated and protected in an economy.

• There are four main types of property rights:

1. Private Property – Owned by individuals or businesses, who have exclusive control over its use (e.g., a house or a company).

2. Public Property – Owned by the government and available for public use (e.g., roads, national parks).

3. Common Property – Shared by a group, where no single person has exclusive ownership (e.g., fisheries, grazing land).

4. Intellectual Property – Legal protection for ideas, inventions, and creative works (e.g., patents, copyrights, trademarks).

Characteristics of common pool resources: 

• Non excludable

• Rivalrous 

Characteristics of common pool resources: 

• Non excludable 

• Non rivalrous 

Market fails because there is a lack of public goods.  

• Costs money to make 

• Lack of public goods simply mean that there are less providers

Free rider problem 

• Lack of public goods causes a free rider problem. 

• The free rider problem is a situation where individuals benefit from a good or service without paying for it. This often occurs in group settings or public goods, where one person's consumption does not reduce the availability for others. A common example is a group assignment in class, where one student does not contribute but still receives the same grade as those who worked hard. This scenario highlights the essence of the free rider problem, where some individuals exploit the efforts of others without incurring any costs themselves.

• Causes of the Free Rider Problem 

  • The free rider problem arises primarily due to the nature of public goods. Public goods are characterized by two main features:

    • Non-excludability: Once provided, no one can be excluded from using the good. For instance, asteroid protection benefits everyone on Earth, regardless of whether they contribute to its funding.

    • Non-rivalry: One person's use of the good does not diminish its availability to others. In the case of asteroid protection, if one person benefits from it, it does not reduce the protection available to others.

• Consequences of the Free Rider Problem

  • The primary consequence of the free rider problem is market failure. If too many individuals choose to free ride, the goods or services may not be funded or provided at all. For example, if not enough people pay for asteroid protection, it may lead to a lack of funding, resulting in no protection for anyone. This situation illustrates how the free rider problem can hinder the provision of essential services that benefit society as a whole.

• In summary, the free rider problem is a significant economic issue that arises from the characteristics of public goods, leading to potential market failures when individuals opt not to contribute while still enjoying the benefits.

Quasi public good– quasi [incomplete complete]. Meaning, it has some, but not all the characteristics of a public good [which are non excludability and non rivalry]. 

Types of quasi public goods are: 

• common pool resources [non excludable but rivalrous]: anyone can use them, however overuse leads to depletion.   

  • Example: fisheries, forets, and groundwater.

• club goods [excludable but non rivalrous]: not everyone can use them, however, one person's use of it does not deplete it. 

  • Examples: netflix, stream service, private parks. 

Club goods

• A club good is a type of good that is excludable (people can be prevented from using it) but non-rivalrous (one person's use does not significantly reduce availability for others—at least up to a certain point). However, some club goods can become partially rivalrous due to congestion or limited resources.

• Key Characteristics:

1. Excludable – Access can be restricted through pricing, membership, or other barriers.

2. Non-rivalrous (but can become rivalrous with congestion) – Consumption by one person does not usually reduce the availability of the good for others, but excessive demand can lead to rivalry.

• Example: Gym Memberships
  You're absolutely right! Gym memberships can be partially rivalrous because while access is granted to many, congestion or equipment limitations can make them rivalrous at peak times.

• Other Examples of Club Goods:

• Streaming services (Netflix, Spotify) – Many people can use them, but a subscription is required.

• Private parks or golf courses – Members can enter, but outsiders cannot.

• Toll roads without congestion – People can use them freely if they pay, but excessive use can cause traffic (making them rivalrous).