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Chapter 19

ECON 200 Chapter Notes - Chapter 19: Public Good, Overconsumption, Private Good

Course Code
ECON 200
Cindy Clements

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Chapter 19: Public Goods and Common Resources
Characteristics of Goods
Excludable- a characteristic of a good or service that allows owners to prevent
its use by people who have not paid for it
Excludability matters because it allows owners to set an enforceable price
on a good
If you can’t prevent people from consuming something, they have
little reason to pay for using it
Ex. Street lights are a nonexcludable good
Everyone who comes through the street gets the benefit,
regardless of whether they’ve paid to put up the lights
You cannot prevent the person who didn’t pay from getting the
benefit of the lamps
Excludability can be a matter of degree
Ex. Most roads are nonexcludable, but bridges and tunnels can be
made excludable by setting up toll booths
Rival-in-consumption (rival)- the characteristic of a good for which one
person’s consumption prevents or decreases others’ ability to consume it
Rivalry has to do with whether or not a good is “used up” when someone
consumes it
Four categories of goods
Private good- a good that is both excludable and rival
Public good- a good that is neither excludable or rival
Common resources- a good that is not excludable, but is rival
Artificially scarce good- a good that is excludable, but not rival
The Problems with Public Goods and Common Resources
Free-rider problem- a problem that occurs when the nonexcludability of a public
good leads to undersupply
Since public goods are nonexcludable and non rivalry, the free-rider
problem is common
When a good is not easily excludable, what people pay for it will not
necessarily reflect the real value they place on it
Ex. Even if you value the bus ride highly and would willingly pay
for a ticket if you had to, if you could you would hop on for free
The free-rider problem does not have to do with whether nonpaying riders
are taking up seats on the bus
If the bus could fit an infinite # of riders, seats would not be in
short of supply, but not enough riders would pay the fare to cover
the cost of running the bus
Free riders enjoy positive externalities from others’ choices
Ex. When others pay for bus rides, clean public bathrooms, or
shoveled roads
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