Chapter 11 – Public Goods and Common Resources
Now we are focusing on goods and services that are provided for free by the government.
Since price is absent, the market can’t guarantee that the good is produced and consumed in the right
Different Kinds of Goods
Excludability People can be prevented from using the good or service (eg tickets to a concert)
Rivalry One person’s use of a good diminishes the ability of another person to use it (eg.
parking spaces in the parking lot.)
We can divide goods into four categories
Private Goods Excludable and Rival Example: Chocolate bars; you can’t have one if no
one will sell it to you
Public Goods Neither Example: fireworks display; you can’t stop someone
from looking at the sky.
Common Resources Rival Example: fish in the ocean.
Natural Monopoly Goods Excludable Example: cable TV; you can’t get it if you don’t
subscribe, but everyone can get it.
Public Goods Free-Rider Problem
A free-rider is someone who receives the benefit of a good but avoids paying for it.
A private firm will not provide public goods because they are not profitable.
A local government can tax residents and use t