Public Goods & Common Resources

• Criteria to classify goods

  • Rivalrous
  • Excludable
• Rivalrous


  Does the consumption by one party reduce the supply available for another (if you consume it, does it reduce the available supply for others?)
• Rival good


  • Laptop
• Excludable


  Is it possible to exclude a non-payer from the good or service?
• Non-excludable goods


  • Parks
  • Roads
• Private Goods


  • Rivalrous: your consumption of the good or service means another party cannot consume it
  • Excludable: there are requirements to be met to buy (price)
• Club Goods


  • Non-rival: your consumption of the good or service does not prevent another party from consuming it
  • Excludable: there are requirements to be met before being able to access the good or service
• Club Goods


  • Gym
  • Concert
• Club goods start off as club goods


  When supply becomes limited (competition for last remaining places), they become private goods
• Common Property Resources


  • Rivalrous: your consumption of the good or service means another party cannot consume it
  • Non-excludable: no requirements to be met to access the good or service
• Common Property Resources


  • Fish in the ocean
• Common property resources can lead to overconsumption because everyone can access it (market failure)
• Tragedy of the commonsin Common Property Resources


  • Over-consumption of common property resources
  • Occurs as the resource is readily available and there are no restrictions on consumption
  • Once consumed, the resource is no longer available to another party, leading to depletion of resources
• To correct tragedy of the commonsin Common Property Resources

  Enforce restrictions on consumption e.g. non-fishing zone, licence etc
• Public Goods


  • Non-rival: your consumption of the good or service does not prevent another party from consuming it
  • Non-excludable: no requirements to be before getting access to access the good or service
• Public Goods


  • National park
  • Lighthouse
• Free rider effect in public goods (market failure)

  • Free riders enjoy the benefits of the consumption of a resource without paying for the cost of provision
  • Can lead to over-consumption and rapid damage of a public resource
• To correct free rider effect

  Create ownership of resource: fee for public transport, fine for public property damage
• Merit goods


  Products that are produced that have large external benefits for society
• Merit goods


  • Will be underprovided in the economy if product is left in the market
  • e.g. education
• Demerit goods


  Goods that are produced that have large external costs to society
• Demerit goods


  • Overprovided if left in market
• Both merit and demerit goods are private goods as they are both rival and exclusive