Chapter+11+Kathy+L

  

 

 What determines public goods and common resources?

 In this chapter, we will observe the problems that grow for the allocation of resources when there are goods without market prices. When a good does not have a definite price, it is impossible for the private markets to make sure that the good is produced and consumed in proper amounts. Thus, government have policies that will remedy the market failure for this and raise the economic well-being.

Public Goods and Common~ Resources
 * Public Goods and Common Resources Song**

What determines public goods and common resources?

We can divide them into excludability~ and rival in consumption!




We can divide the many different kinds of goods into categories depending on two factors: (1) Excludability (2) Rival in Consumption

First we must ask whether the good is excludable or not. What is excludability? In simple terms, can people be blocked or stopped from using the good?
 * Excludability**: the property of a good whereby a person can be prevented from using it

Next we consider if the good is a rival in consumption. Rivalry in consumption: the property of a good whereby one person's use diminishes other people's use. In other words, if I use this good, can someone else no longer use it?



With these two characteristics, goods are divided into four:

- Private Goods - Natural Monopolies - Common Resources - Public Goods

First, **private goods**. These types of goods are both excludable and also a rival in consumption. An example may be a toothbrush. You can be prevented from using it, let's say, because your brother hid it. Thus, it is excludable. Also, it is rival in consumption because your usage of the toothbrush prevents someone else from using the same one, for example, your mom.

Next up, **public goods**. Public goods are not excludable and not rival in consumption either. An example may be fireworks. Fireworks are displayed high up in the sky so no one can be prevented from seeing it--thus it is not excludable. Also it is not rival in consumption: you watching fireworks does not take away the joy of others watching the fireworks.

Some important public goods are: - National Defense - Basic Research - Fighting Poverty

What about **common resources**? These are rival in consumption. However, they are not excludable. Why? Take, for instance, fish in the ocean. The ocean is so vast so no one can block you from fishing in the ocean. Nonetheless, if you catch a fish, no longer can that fish be fished by anyone else. In common resources, something called the Tragedy of the Commons may occur. This is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

Some important common resources are: - Clean air and water - Congested roads - Fish, whales, and other wildlife

Lastly, **natural monopoly**--excludable but not rival in consumption. How? If it is a monopoly, it means that the market is not competitive and so the only way to get the good (in that area) would be to get it from the monopoly itself. Thus, it is easy to exclude someone from these monopoly goods. For example, if there is only one TV cable company in your city, everyone would pay that cable company. If you do not pay for them, you will automatically be excluded from watching all the TV cable channels. Nonetheless, you watching the cable channels does not block someone else from watching them.

 Define public goods and common resources and give an example of each.

 **Common resources:** goods that are rival in consumption but not excludable
 * Cost-benefit Analysis:** a study that compares the costs and benefits to society of providing a public good
 * Excludability:** the property of a good whereby a person can be prevented from using it
 * Free rider:** a person who receives the benefit of a good but avoids paying for it
 * Private goods**: goods that are both excludable and rival in consumption
 * Public goods:** goods that are neither excludable nor rival in consumption
 * Rivalry in Consumption:** the property of a good whereby one person’s use diminishes other people’s use
 * Tragedy of the Commons:** a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole