Common Resources & Public vs. Private Goods
Chapter 11
Reading: Tragedy of the Commons
Excludable & Rival Goods
Rival Goods- consumption by one person reduces quantity available for others consumers
Excludable Goods- consumer who can not pay are excluded from consuming/using it…..
Common Resources
• Common Resources – are commonly owned resources– Example: fish in ocean, the environment
– They are non-excludable & rival in consumption
• Tragedy of the Commons- the absence of incentives to prevent “overuse” & depletion of a common resource
Private Goods
• Private Goods• Goods that are both excludable & rival in consumption
Private Goods: Food, Coffee, airline tickets, automobiles, etc…
End Result: Goods/Services are allocated efficiently based on MB ≥ MC
Public Goods
• Public Goods• Goods that are neither excludable nor rival in consumption
Public Goods: police protection, radio signals, national defense, public roads, Fireworks, etc….
End Result: many consumers get public goods without paying for them…
Problems with Public Goods• Free-rider Effect- a person who receives the benefit of a
good but avoids paying for it
• Examples:
– “Slacker” in group work at school
– Volunteers for neighborhood cleanup
– Fundraising for Fire Department
– Not paying taxes
Public Good Efficiency
• When goods are available free of charge => market forces will not allocate resources efficiently
• Government should collect taxes & provide public goods whenever Total Benefits ≥ Total Costs
• Examples:
– National Defense
– Basic Research
– Fighting Poverty
– Fireworks on 4th of July
.
.
Private Goods, Public Goods & Common Resources
Allocated Efficiently: MB ≥ MC
Leads to overuse/depletion
Gov’t should provide if TB ≥ TC leads to “free rider” problem
Tragedy of Commons Practice Test