Public Goods and Common Resources 11 Public Goods and Common Resources

The Different Kinds of Goods Public goods & Common resources Not excludable: people cannot be prevented from using them (free riders) Externalities Public Good: positive externality/benefits for the public, but not compensated for in market SMB > PMB -> 2 different demand curves Produce too little when PMB = PMC (Market) Common property resource: negative externality/costs PMC < SMC -> 2 different cost curves Overuse of the resource

Criteria Use For Classifying Goods Excludability – can people be excluded from using the good it they don’t pay for it? Common Property (e.g., Parks, Fishery) – NO! Rivalry in consumption One person’s use diminishes other people’s use Common Property – Yes! (Trees, Fish)

Public Goods & Common Property Resources Common Property Resource – also not excludable, but is rival in consumption Can’t exclude others from using/accessing the resource (fish, timber/forests) -> leads to overuse and possible exhaustion of the resource

The Different Kinds of Goods Types of goods Public goods Not excludable & Not rival in consumption Common resources Rival in consumption & Not excludable Private goods Excludable & Rival in consumption Natural monopoly Excludable & Not rival in consumption

1 Four types of goods Rival in consumption? Yes No Excludable? Private goods - Ice-cream cones - Clothing - Congested toll roads Natural monopolies - Fire protection - Cable TV - Uncongested toll roads Common resources - Fish in the ocean - The environment - Congested nontoll roads Public goods - Tornado system - National defense - Uncongested nontoll roads Goods can be grouped into four categories according to two characteristics: (1) A good is excludable if people can be prevented from using it. (2) A good is rival in consumption if one person’s use of the good diminishes other people’s use of it. This diagram gives examples of goods in each category.