Public versus Private Goods

Goods:
a) free goods (air)
b) scarce goods are priced
a. goods (there is a demand)
b. bads (there is no demand)
Public goods dont necessarily have to be provided by the government (example: radio).

The Goods Matrix

RIVAL

NON-RIVAL

private goods
(my laptop)

club goods
(concerts, a lesson,)

commons
(drinking water, fish in the
sea)

public goods
(lighthouse, sidewalk)

EXCLUDABLE

NON-EXCLUDABLE

Rivalry: use of the good prevents its use by another person

Excludability: use of good requires some mechanism for distribution (ie. price system). A consumer
can be excluded from the consumption of excludable goods.
Private goods can be provided publicly (nationalization).
Public goods can be provided privately (ie. lighthouses and TV).

Problems
The Tragedy of Commons
Commons tend to be over-exploited to the extent that they are destroyed and unusable.
overfishing If fish in the sea were a private good, the owner would be unlikely to fish to the extent
of killing out populations or even species. But since this is a common good, people think: If I dont
fish, others will! The fish will die anyway and I wont even profit! Therefore, I must fish!

Free ride

demand for public goods is not expressed by the market people want the good, but are
unwilling to pay for it
a free ride occurs when most of the consumers pay for the good, but someone (the free
rider) does not

many people try to benefit from the opportunity of a free ride, and thus nobody is willing to
pay for the good