1. Public Goods and Common Resources11
Public Goods and Common Resources

2. The Different Kinds of Goods
Public goods & Common resources
Not excludable: people cannot be prevented from using them (free riders)
Externalities
Public Good: positive externality/benefits for the public, but not compensated for in market
SMB > PMB -> 2 different demand curves
Produce too little when PMB = PMC (Market)
Common property resource: negative externality/costs
PMC < SMC -> 2 different cost curves
Overuse of the resource

3. Criteria Use For Classifying Goods
Excludability – can people be excluded from using the good it they don’t pay for it?
Common Property (e.g., Parks, Fishery) – NO!
Rivalry in consumption
One person’s use diminishes other people’s use
Common Property – Yes! (Trees, Fish)

4. Public Goods & Common Property Resources
Common Property Resource – also not excludable, but is rival in consumption
Can’t exclude others from using/accessing the resource (fish, timber/forests) -> leads to overuse and possible exhaustion of the resource

5. The Different Kinds of Goods
Types of goods
Public goods
Not excludable & Not rival in consumption
Common resources
Rival in consumption & Not excludable
Private goods
Excludable & Rival in consumption
Natural monopoly
Excludable & Not rival in consumption

6. 1 Four types of goods Rival in consumption? Yes No Excludable?
Private goods
- Ice-cream cones
- Clothing
- Congested toll roads
Natural monopolies
- Fire protection
- Cable TV
- Uncongested toll roads
Common resources
- Fish in the ocean
- The environment
- Congested nontoll roads
Public goods
- Tornado system
- National defense
- Uncongested nontoll roads
Goods can be grouped into four categories according to two characteristics:
(1) A good is excludable if people can be prevented from using it.
(2) A good is rival in consumption if one person’s use of the good diminishes other people’s use of it.
This diagram gives examples of goods in each category.