Microeconomics Lecture 11 Public Goods and Common Resources
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Microeconomics Lecture 11
!
Public Goods and
Common Resources
Key Termsexcludability rivalry in consumption private goods public goods common resources club goods free rider cost-benefit analysis Tragedy of the Commons
Four Types of Goods
Private Goods Public Goods
Common Resources Club Goods
Some goods do not have prices
How much should we produce?
!
Government policy
Private GoodsGoods that are excludable and rival in consumption.
!
Can exclude others If I consume, you cannot
ExcludableCan people be prevented
from using the good? !
Yes No
Rivalry in Consumption
Can one person’s use of a good reduce others use?
!
Can two people consume at the same time without
reducing?
Exclude others !
When I consume it diminishes
Public GoodsGoods that are neither excludable
nor rival in consumption. !
Cannot exclude Everyone can consume without
reducing amount
Free Rider
a person who receives a benefit
but does not pay for it
National Defense
Basic Research !
Everybody Benefits
Common ResourcesGoods that rival in
consumption but are not excludable
!
Cannot exclude others If I consume, you cannot
Common Resource
!
Drink as fast as possible before it runs out
Private Good
Each person has his own cup
Which method will incentivize people
to not waste the resource?
Share one cup Each person gets their own cup
Tragedy of the Commons
If everyone owns it, no one owns it
Privatize the commons
Property Rights
Reduce contention !
Create wealth
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