ECON 1000 Chapter Notes - Chapter 11: Canada Day, Abundant Number, Market Failure

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ECON 1000
CHAPTER 11: PUBLIC GOODS AND COMMON RESOURCES
Goods without prices provide a special challenge for economic analysis. Most goods in our
economy are allocated in markets, in which buyers pay for what they receive and sellers are
paid for what they provide. For these goods, prices are the signals that guide the decisions of
buyers and sellers, and these decisions lead to an efficient allocation of resources.
The different kinds of goods
Is the good excludable? Can people be prevented from using the good?
Is the good rial i osuptio? Does oe perso’s use of the good diiish aother perso’s
ability to use it?
Using these 2 characteristics divides goods into 4 categories:
1. Private goods are both excludable and rival in consumption. Example: Ice cream cone.
2. Public goods are neither excludable nor rival in consumption. That is, people cannot be
prevented from using a puli good, ad oe perso’s use of a puli good does ot
redue aother perso’s ailit to use it. e.g. torado sire
3. Common resources are rival in consumption but not excludable. For example: fish in the
ocean are rival in consumption: when one person catches a fish, there are fewer fish for
the next person to catch. Yet these fish are not excludable good because, given the vast
size of an ocean, it is difficult to stop fishermen from taking fish out of it
4. Club goods are excludable but not rival in consumption. i.e. fire station. Once a town has
paid for the fire department, the additional cost of protecting one more house is small.
Public Goods
Fireworks: this good is not excludable because it is impossible to prevent someone from seeing
fireorkds, ad it is ot rial i osuptio eause oe perso’s ejoet of fireorks
does ot redue aoe else’s ejoet of the.
The Free-Rider Problem
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