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 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 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 4 th 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