Chapter 11 - Public Goods and Common resources

Question 1

What is Excludability and Rival in consumption?

Answer 1

Excludability - the property of a good whereby a person can be prevented from using it.

Rival in Consumption - the property of a good whereby one person’s use diminishes other people’s use.

Question 2

Goods can be divided into 4 different groups, what are they?

Answer 2

Private goods - both excludable and rival. (EX: clothing, ice-cream cones)
Public Goods - neither excludable nor rival (EX: National Defense, Tornado siren)
Common resources - rival but are not excludable (EX: The environment, fish in ocean)
club goods - excludable but not rival (EX: Cable TV, fire protection)

Question 3

Who is a Free rider?

Answer 3

A person who receives the benefit of a good but avoids paying for it.

Question 4

What is Cost-benefit analysis?

Answer 4

A study that compares the costs and benefits to society of providing a public good.

Question 5

What is the Tragedy of the commons?

Answer 5

A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.

Question 6

What conclusions can you draw from this chapter?

Answer 6

The market fails to allocate resources efficiently because property rights are not well established.

When the absence of property rights causes a market failure, the government can potentially solve the problem.