The Four Types of Goods

Key Terms Excludable Rival in Consumption When the supplier of the good can prevent people from using the good who don’t pay for it Rival in Consumption When the same unit of a good cannot be consumed by more than one person at the same time.

Private Goods

What makes a good or service private? The good is excludable The good has a rival in consumption For example….

Public Goods

What makes a good or service public? You can’t prevent anyone from using it. Non-excludable The same unit can be used as many times without reducing the benefit to others No rival in consumption

Is this a pure public good….?

Free-Rider Problem Individuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay. This is why public goods and services exist. But, this causes a lower production to be produced than what the market wants.

Artificially Scarce Goods Sometimes called “Club Goods” These are excludable but don’t rival in consumption

Common Good Sometimes called “common resources.” These are non-excludable but do have a rival in consumption.

The Tragedy of Commons When people act rationally based on their self interest but behave contrary to what’s best for society. This leads to overuse of common resources Which then leads to market failure (over-consumption)

The Four Types of Goods Matrix Rival in consumption? Yes No Private goods Ice cream Clothing Toll ways Natural Monopolies Fire Protection Electricity Common Resource Fish (in the ocean) Environment Highways Public Goods Tornado Sirens Armed Forces Yes Excludable No

Do you think ALL education should be a private service? On a separate sheet of paper, write an economic report that answers this question. Your report should include some graphical explanations. Things to consider Impact on quantity, price Impact on school environment Impact on the community Will a shortage and/or surplus occur? etc