GOODS Flashcards
Rival in consumption meaning?
does the consumption by one person reduce the supply available to others
What does excludability mean?
Is it possible to exclude a non-payer from consuming the good or service?
What are the four types of goods?
- Private Goods
2.Public Goods
3.Common Resources
4.Club Goods
Private Goods
Private goods describes most of the goods purchased by households. Private goods have two important characteristics - they are rival in consumption ad they are excludable from non-payers
(EX: Ice cream cone is a private good because it is excludable since you can prevent someone from eating it (attaching a price to it) and it is rival in consumption (you are the only one who gets to enjoy the ice cream cone - once you have it another person can’t consume that same cone)
Public Goods
not excludable, not rival
national defence, fighting poverty, etc
(EX: Tornado siren in small town is a public good because it is not excludable - you can’t prevent someone from hearing the sound - and it is not rival in consumption - one person hearing the sound does not diminish anyone else’s ability to hear the sound)
- free riders cannot be excluded
-Subject to market failure
Club goods
excludable, but not rival
(EX: cable tv)
Millions of people can consume streaming services at the same time (non-excludable) but they must pay a subscription fee to receive the transmission(excludable0
Free rider
A person who receives the benefit of a good but avoids paying for it
Public goods tend to be _, while common resources tend to be _
under-provided, over-consumed
Common Resources
rival, but not excludable
- CANNOT prevent free riders from using
- responsibility of the government to see that they are provided
- LITTLE incentive to provide
(EX: Fish in the ocean is a common resource because it is not excludable - the ocean is vast so a fishermen can’t be excluded from taking fish out of it - but it is rival in consumption - when one person catches a fish there are fewer fish for the next person to catch )
The Tragedy of the Commons
When common resources like fish in the ocean are consumed, a negative externality is imposed on other consumers, because the quantity has been depleted
Tragedy of the commons results in overconsumption and the depletion of a resource that is mutually shared
Why do public goods fail and how to resolve the market failure
Market fails tosupply these goods because firms cannot collect a price.
Policy option is that govts usually provide public goods and cover costs through tax revenue.
Why do common resources fail and how to resolve the market failure
World fish stocks are being depleted because the market cannot prevent consumption – there is no price to regulate use.
Policy option is that govts regulate access to these resources by issuing quotas or licences.
