101 lecture 11

Microeconomics Lecture 11

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Public Goods and

Common Resources

Key Terms

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

Four Types of Goods

Private Goods Public Goods

Common Resources Club Goods

Some goods do not have prices

Some goods do not have prices

How much should we produce?

!

Government policy

Private Goods

Private GoodsGoods that are excludable and rival in consumption.

!

Can exclude others If I consume, you cannot

Excludable

ExcludableCan people be prevented

from using the good? !

Yes No

Rivalry in Consumption

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 Goods

Public GoodsGoods that are neither excludable

nor rival in consumption. !

Cannot exclude Everyone can consume without

reducing amount

Free Rider

Free Rider

a person who receives a benefit

but does not pay for it

National Defense

Basic Research !

Everybody Benefits

Common Resources

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

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


If everyone owns it, no one owns it

Privatize the commons

Property Rights

Property Rights

Reduce contention !

Create wealth

Club Goods

Club GoodsGoods that are excludable

but not rival in consumption !

Can exclude others Everyone can consume

without reducing amount

Excludable?

Excludable?Can people be prevented from consuming?

Yes


Yes

No


Rival in Consumption?

Yes

No



Yes

No

Excludable?

Is it reduced when one person consumes?

Can people be prevented from consuming?


Yes

Yes

No

Excludable?




Yes No

Yes

No

Excludable?




Yes No

Yes

No

Excludable?

Private Goods




Yes No

Yes

No

Excludable?

Private Goods

Snickers Bar




Yes No

Yes

No

Excludable?

Private Goods

Snickers Bar Car




Yes No

Yes

No

Excludable?

Private Goods

Snickers Bar CarPizza




Yes No

Yes

No

Excludable?

Private Goods

Common Resources





Yes No

Yes

No

Excludable?

Private Goods

Common Resources


Fish in Ocean




Yes No

Yes

No

Excludable?

Private Goods

Common Resources


Fish in OceanAir




Yes No

Yes

No

Excludable?

Private Goods

Common Resources

Public Goods


Fish in OceanAir




Yes No

Yes

No

Excludable?

Private Goods

Common Resources

Public Goods


Fireworks National DefenseFish in Ocean

Air




Yes No

Yes

No

Excludable?

Private Goods

Common Resources

Club Goods

Public Goods



Air




Yes No

Yes

No

Excludable?

Private Goods

Common Resources

Club Goods

Public Goods


Satellite TV


Air




Yes No

Yes

No

Excludable?

Private Goods

Common Resources

Club Goods

Public Goods


Satellite TVPaintings


Air



101 lecture 11

Economy & Finance

Transcript of 101 lecture 11