Chapter 11 - Public Goods and Common Resources

Question 1

Excludability

Answer 1

• the property of a good whereby a person can be prevented from using it

Question 2

Rival-In-Consumption

Answer 2

• the property of a good whereby one person’s use diminishes other people’s use

Question 3

Private Goods

Answer 3

• goods that are both excludable and rival

e. g. ice cream, clothing

Question 4

Public Goods

Answer 4

• goods are neither excludable nor rival

e. g. national defence

Question 5

Common Resources

Answer 5

• goods that are rival, but not excludable

e. g. Fish in the Ocean

Question 6

Club Goods

Answer 6

• goods that are excludable, but not rival

e. g. Cable TV

Question 7

Free-Rider Problem

Answer 7

• a person who benefits from a good, but does not avoids paying for it
• Public Goods are hard for the private market to provide because of Free-Riders (e.g. fireworks)
• Also occurs with Common Goods; but worse because Common Goods are Rival

Question 8

Cost-Benefit Analysis

Answer 8

• A study that compares the costs and benefits of providing a public good

Question 9

The Tragedy of the Commons

Answer 9

• a parable illustrating why common resources get used more than is socially desirable
• occurs because of externality: people using the over-using the resource and prevents others from using it