7.1

• 2 CHARACTERS OF GOODS:

  1. Is it good excludable?
  2. Is the good rival?
• PRIVATE GOODS

  are both excludable and rival. Consider an ice-cream cone, for example. An ice cream cone is excludable because it is possible to prevent someone from eating an ice-cream cone - you just don't give it to him. A nice-cream cone is rival because if one person eats an ice
• PUBLIC GOODS- are neither excludable nor rival. That is, people cannot be prevented from using a public good, and one person's enjoyment of a public good does not reduce another person's enjoyment of it.
• Common resources- are rival but not excludable.
• NATURAL MONOPOLY- When a good is excludable but not rival, it is an example of a
• Pure public goods- Goods that are perfectly non-rival in consumption and are non-excludable
• FREE RIDER

  receives benefits but avoids paying.
• FREE RIDER PROBLEM

  prevents private market from supplying goods.
• GOVERNMENT

  can remedy the problem.
• IMPORTANT PUBLIC GOODS

  1. NATIONAL DEFENSE
  2. BASIC RESEARCH
  3. FIGHTING POVERTY
• NATIONAL DEFENSE

  very expensive.
• BASIC RESEARCH

  general knowledge.
• FIGHTING POVERTY

  welfare system; food stamps.