ECO 1104 Chapter Notes - Chapter 11: Civil Defense Siren, Private Good, Externality

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Gordon Lenjosek

Document Summary

Private goods: most goods in the economy are private goods like ice-cream cones: you don"t get one unless you pay for it, and once you have it, you are the only person who benefits, ex. Club goods: for instance, consider fire protection in a small town. It is easy to exclude someone from using this good: the fire department can just let her house burn down. But fire protection is not rival in consumption: once a town has paid for the fire department, the additional cost of protecting one more house is small: ex. Cable tv, requires monthly payment but non-rival in consumption. Once the siren sounds, it is impossible to prevent any single person from hearing it (so it is not excludable): ex. The free-rider: a person who receives benefit of a good but avoids paying for it, because of the free-rider problem, market fails to produce an efficient outcome.