The Four Types of Goods Key Terms Excludable

The Four Types of Goods

Key Terms • Excludable – When the supplier of the good can prevent people from using the good who don’t pay for it • Rival in Consumption – When the same unit of a good cannot be consumed by more than one person at the same time.

Private Goods

What makes a good or service private? • The good is excludable • The good has a rival in consumption • For example….

Public Goods

What makes a good or service public? • You can’t prevent anyone from using it. – Non-excludable • The same unit can be used as many times without reducing the benefit to others – No rival in consumption

Is this a pure public good…. ?

Free-Rider Problem • Individuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay. • This is why public goods and services exist. – But, this causes a lower production to be produced than what the market wants.

Artificially Scarce Goods • Sometimes called “Club Goods” • These are excludable but don’t rival in consumption

Common Good • Sometimes called “common resources. ” • These are non-excludable but do have a rival in consumption.

The Tragedy of Commons • When people act rationally based on their self interest but behave contrary to what’s best for society. • This leads to overuse of common resources – Which then leads to market failure (overconsumption)

The Four Types of Goods Matrix Rival in consumption? Yes Excludable No No Private goods Natural Monopolies - Ice cream - Clothing - Toll ways - Fire Protection - Electricity Common Resource Public Goods - Fish (in the ocean) - Environment - Highways - Tornado Sirens - Armed Forces

Do you think ALL education should be a private service or all public? • On a separate sheet of paper, write an economic report that answers this question. • Your report should include some graphical explanations. • Things to consider – Impact on quantity, price – Impact on school environment – Impact on the community – Will a shortage and/or surplus occur? – etc