ECON 1 Lecture Notes - Lecture 10: Taco, Public Good, Private Good
#10 Thursday 2/15 (Ch.11 Public Goods)
Introduction
● We consume many goods without paying: parks, national defense, clean air
● When goods have no prices, private firms have no incentive to produce them
● The private market fails to provide them → the government needs to intervene
Definitions
● A good is excludable if a person can be prevented from using it.
○Excludable
: fish tacos, wireless Internet access
○Not excludable
: FM radio signals, national defense
● A good is rival if one person’s use of it diminishes others’ use,
○Rival
: fish tacos
○Not rival
: an MP3 file of Kanye West’s song
Private good: excludable and rival
Example: food, cars, clothes
Public good: not excludable, non rival
Example: national defense
Common resource: rival but not excludable
Example: fish in the ocean
Some Important Public Goods
● National defense
● Clean air
● Knowledge created through basic research
● Streetlights
● Protection of biodiversity
● The private market fails to supply public goods
Why the Market Fails?
● Free rider: a person who receives the benefit of a good but avoids paying for it
● If a good is not excludable, people have incentive to free ride, because firms cannot prevent them from
consuming it.
→ The good is not produced by private firms, even if people value the good
Solution
● If benefit is larger than cost of provide the good, the government should provide the good and pay for it
with a tax
● Problem: measuring the benefit is usually difficult.,
○ Willingness to pay for national defense?
