Chapter 11: Public Goods and Common Resources

Goods differ in whether they are excludable and whether they are rival in consumption. A good is excludable if it is possible to prevent someone from using it. A good is rival in consumption if one person's use of the good reduces other people's ability to use the same unit of that good. Markets work best for private goods, which are both excludable and rival in consumption. Markets do not work as well for other types of goods. Public goods are neither rival in consumption nor excludable. Examples of public goods include firework displays, national defense, and the creation of fundamental knowledge. Because people are not charged for their use of the public good, they have an incentive to have the "free ride" when the good is provided privately. Therefore, the government provides public goods, making their decision about the quantity of each good based on cost-benefit analysis, a study that compares the costs and benefits to society while providing a public good. Private goods are both excludable and rival in consumption. Such examples are ice-cream cones, clothing, and congested toll roads. Common resources are rival in consumption but not excludable. Examples include common grazing land, clean air, and congested nontoll roads. Because people are not charged for their use of common resources, they tend to use them excessively. Therefore, governments use various methods to limit the use of these common resources. Overall, I would give this chapter a 2 out of 3 difficulty rating.