Chapter

1

DYNAMIC POWERPOINT™ SLIDES BY SOLINA LINDAHL

Public Goods and the
Tragedy of the

CHAPTER OUTLINE

Four Types of Goods
Private Goods and Public Goods
Nonrival Private Goods
Common Resources and the
Tragedy of the Commons
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Food for
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Four Types of Goods
Goods can be classified as:
Non-excludable: When people who don’t pay cannot be easily prevented from using a good Example: National defense

Non-rival: When one person’s use of a good does not reduce the ability of another person to use the same good
Example: Digital music

Asteroid deflection is both non-excludable and nonrival.
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Four Types of Goods
Excludable: When people who don’t pay can be easily prevented from using a good
Example: Jeans

Rival: When one person’s use of a good reduces the ability of another person to use the same good
Example: Cheeseburger

Your Happy Meal: both excludable and rival.
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Four Types of Goods
Four Types of Goods
Excludable

Non-excludable

Rival

Private Goods

Common Resources

Non-rival

Nonrival Private
Goods

Public Goods

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Private Goods and Public Goods
1. Private Goods are excludable and rival.
Most goods are private goods.

Private goods can be efficiently provided in competitive markets.
Because they are excludable, there is a strong incentive to pay for and produce them.
Because they are rival, excludability does not lead to inefficiency.
The only people excluded from consuming a private good in a competitive market are those who are not willing to pay.

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Private Goods and Public Goods
A Free Rider enjoys the benefits of a public good without paying a share of the costs.
Free riders can disrupt market efficiency. With enough of free riders, public goods will be underprovided by the market. Is he working on your group project?
Or is he on Facebook, free-riding on Back to

Private Goods and Public Goods
Failure to provide public goods at the optimal level can create substantial costs.
The benefits of public goods provide a strong argument for taxation and government provision.
By taxing everyone and producing the public good, government can make people better off.

Without government-provided highways, how would you get to
Columbus?
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Private Goods and Public Goods
Just because everyone can be made better off with taxation and government provision does not mean that everyone will be made better off.
Some people may want more of the public good while some may want less. Some people may want none.

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Private Goods and Public Goods
A Forced Rider is someone who pays a share of the costs of a public good
(through taxation) but who does not enjoy the benefits.

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Private Goods and Public Goods
If the government provides the public good, how much should it produce?
Ideally, the amount that maximizes