Chapter+11+Emily+K

=CHAPTER 11: PUBLIC GOODS AND COMMON RESOURCES =

Economists divide products into four different groups. In this chapter, we will talk about these groups, and what problems they may pose. When dividing the goods into different categories, economists ask two questions: 1. Is the good **excludable**? 2. Is the good **rival in consumption**?

When a good is **excludable**, a person can be prevented from using the good. Most likely, one would have to pay for the good and thus those who cannot afford will be naturally prevented from buying the good. When a good is **rival in consumption**, one person's use of the good reduces another person's ability to use it. In other words, the supply is limited, so if someone uses the good, less of the good will be left for any other person to use.

(DRAW THE CHART W/ FOUR DIFFERENT GROUPS)

Problem with a Public Good: Free Rider Problem A **free rider** is someone who receives benefit of a good but does not pay for it. This occurs with public goods, because public goods are //not// excludable. Thus when a free rider problem occurs, private market will not supply the good, since there is no way to exclude the good only to those who pay. The only way to combat this problem is by having the government step in. If the government thinks that providing the good is worth it (total benefits outweigh total costs), then the government will provide the good (with our tax money). Everyone will be better off.

Problem with a Common Resource: Tragedy of the Commons