Four Types of goods ● Private goods Are both excludable and rival ● Public goods Are neither excludable nor rival Common resources Are rival but not excludable o Natural monopolies Are excludable but not rival
Four Types of Goods • Private Goods – Are both excludable and rival. • Public Goods – Are neither excludable nor rival. • Common Resources – Are rival but not excludable. • Natural Monopolies – Are excludable but not rival
Types of Goods Rival? Y es No Private Goods Natural Monopolies Ice-cream cones Movies Yes Clothing Cable tv Congested toll roads. Uncon gested toll roads Excludable? Common Resources Public Goods No Fish in the ocean National defense The environment Knowledge Congested nontoll. Uncongested nontoll roads roads
Types of Goods Rival? Yes No Yes Private Goods · Ice- cream cones ·Clothing · Congested toll roads Natural Monopolies · Movies ·Cable TV · Uncongested toll roads No Common Resources · Fish in the ocean · The environment · Congested nontoll roads Public Goods · National defense ·Knowledge · Uncongested nontoll roads Excludable?
The Free-Rider problem o A free-rider is a person who receives the benefit of a good but avoids paying for it Since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it The free-rider problem prevents private markets from supplying public goods
The Free-Rider Problem • A free-rider is a person who receives the benefit of a good but avoids paying for it. • Since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it. • The free-rider problem prevents private markets from supplying public goods
Solving the Free-rider problem The government can decide to provide the public good if the total benefits exceed the costs o The government can make everyone better off by providing the public good and paying for it with tax revenue
Solving the Free-rider Problem • The government can decide to provide the public good if the total benefits exceed the costs. • The government can make everyone better off by providing the public good and paying for it with tax revenue
Some Important Public goods ● National defense ● Basic research Programs to Fight poverty
Some Important Public Goods • National Defense • Basic Research • Programs to Fight Poverty