Ch.11+Public+Goods+and+Common+Resources

Do you like free stuff? Of course!!!

In our lives, we take advantage of free products without knowingly. Some examples of free products available for the people are the roads, parks, security, etc. It is true that we still pay taxes for some of these products. But how do these products affect the economy? One of the Ten Principles of Economics says "Governments can sometimes improve market outcomes." Yes, governments play a big role in this chapter. How? Let's checkitout yo!

Different Kinds Of Goods
There are four types of goods. When we categorize them, we ask...
 * Is the good excludable? Can people be prevented from using the good?
 * Is the good rival in consumption? Does one person's use of good reduce another person's ability to use it?


 * Private Goods** are both excludable and rival in consumption. Consider an apple, for example. An Ice-cream cone is excludable because it is possible to prevent someone from eating an apple --- you just don't give it to him.
 * Public Goods** are neither excludable nor rival in consumption. That is, people cannot be prevented from using a public good, and one person's use of a public good does not reduce another person's ability to use it. An example of a public good will be natinal defense.
 * Common Resources** are rival in consumption but not excludable. For example, fish in the ocean are rival in consumption: When one person catches fish, there are fewer fish for the next person to catch. Yet these fish are not excludable good because, given the vast size of an ocean, it is difficult to stop fishermen from taking fish out of it.
 * Natural Monopoly** is when a good is excludable but not rival in consumption. For example, it is better to have just one cable for television than multiple cables. It is more efficient, for many cables will be more complicating and hard to manage. These goods are also called low-congestion goods.

Although it seems these categories are clear-cut, you must know that sometimes the boarder lines are fuzzy-buzzy.

Free-Ride Problem
Do you enjoy watching fireworks from your room through you're window? If you do, then you are a free-rider. Wheeeeee.


 * Free-Rider** is a person who receives the benefit of a good but does not pay for it. Did you pay for watching the fireworks? Nahh.

With bunch of free-riders like you, these markets would fail, because everyone is going to free-ride and not pay!

One solution the government can give to this problem is by raising the tax and using that tax money to hold firework festivals. This way, people pay a tiny bit for watching the firework, and the firework-ers will not lose money.

Some Important Public Goods
It is a public good because it is impossible for one to escape national defense once one is in the country. Also it is not a rival in consumption because even if one enjoys national defense, it does not prevent others from enjoying more national defense.
 * National Defense**

Here, we're talking about the general knowledge, not specific technological knowledge. For example, invention of microchips did not make microchips public goods because of the patent. General knowledge is like a mathematical theorem. Once a theorem is found, it can be used by anyone without any cost.
 * Basic Research**

Tragedy of the Commons
Common resources are not excludable. But they are rival in consumption. This gives rise to a new problem called the tragedy of the commons.

Watch this video to know more about the tragedy of the commons. media type="youtube" key="WuzEDqHfKFQ" height="295" width="480"

Some Important Common Resources
The more people use clean air and water, the less clean air and water available for other people.
 * Clean Air and Water**

Like explained above, in traffic zone, more cars means more traffic.
 * Congested Roads**

People want to hunt them for money, but those animals will get extinct.
 * Fish, Whales, and Other Wildlife**


 * __Key Concepts__**
 * excludability**: characteristic of a good whether people can be prevented from using the good
 * rivalry in consumption**: characteristic of a good whether one person's use of a good would reduce another person's ability to use it
 * private goods**: goods that are both excludable and rival in consumption
 * public goods**: goods that are neither excludable nor rival in consumption
 * common resources**: goods that are rival in consumption but not excludable
 * free rider**: person who does not pay for but enjoys the good
 * cost-benefit analysis**: study that compares the costs and benefits to society of providing a public good
 * Tragedy of the Commons**: story that shows why common resources are used more than what is needed

Questions 1. Who does not pay for a good but enjoys the good? 2. What is the story that shows why common resources are used more than what is needed?

Answers 1. Free riders 2. Tragedy of the Commons