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Public Goods and Common Resources

1. The document discusses four types of goods: public goods, private goods, common resources, and club goods. 2. Public goods are non-rival and non-excludable, meaning consumption by one person does not reduce availability or exclude others. Examples include air and public parks. Common resources are rival but non-excludable, like fish in the ocean. 3. Private goods are rival and excludable, so one person's consumption reduces availability to others, who can be excluded. Examples are food and cars. Club goods are excludable but non-rival, allowing exclusion but not reducing availability, like cable TV.

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54 views14 pages

Public Goods and Common Resources

1. The document discusses four types of goods: public goods, private goods, common resources, and club goods. 2. Public goods are non-rival and non-excludable, meaning consumption by one person does not reduce availability or exclude others. Examples include air and public parks. Common resources are rival but non-excludable, like fish in the ocean. 3. Private goods are rival and excludable, so one person's consumption reduces availability to others, who can be excluded. Examples are food and cars. Club goods are excludable but non-rival, allowing exclusion but not reducing availability, like cable TV.

Uploaded by

Bilal 404
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Public Goods and Common Resources

Subject: Principles Of Micro Economics


Topic: Kinds of goods
Instructor Name: Muhammad Izhar Akram
Cell# 0300-8042833
THE BEST THINGS IN LIFE
ARE FREE ….
Goods without prices provide a special challenge for the economic
analysis.
Price are the signals….

That guide decisions of buyers and sellers which leads to


an efficient allocation of resources.

Otherwise when the goods are available for free the


market forces that normally allocate the resources
become Absent.
Kinds of Goods….
As there are various goods in economy, but we discussed
four types:

1. Public Goods
2. Private Goods
3. Common Resources
4. Club Goods
1. Public Goods…
Some goods are provided by the govt. to the entire people called
Public goods.
Public goods are those goods that can be consumed
simultaneously by everyone.
Example: Air, Defense, Public Park etc.

Features
1. Non Rival
Benefit to one person does not reduce benefit of the other.
e.g. if one can intake vitamin D from sun it would not reduce the
availability vitamin D for others.
2. Non Excludable
One can not refuse to anyone to consume public goods e.g. air.

3. Indivisible
One cannot divide public goods for personal used only.

4. Free Riding Problem


A person who consumes a good without paying for it.

5. Marginal Cost
Marginal cost is zero or near zero.

6. Different Price
Same commodity provide at different prices.
2. Private Goods…
Private goods are those goods that can not be consumed
simultaneously by entire people.
Example: Car, Food etc.
Features

1. Rival
Benefit of one person can reduce the benefit of other
e.g. Food(Burger)
2. Excludable
One can refuse other to use private goods. (car)

3. Divisible
One can divide pvt. Goods.

4. Marginal cost
Marginal cost is not zero.

5. Same price
Same commodity provide at same price e.g. (price of
car same in all market)
3. Common Resources
Goods that are rival but not excludable.

1. Rival
Benefit of one person can reduce the benefit of other.
2. Non Excludable
One can not refuse to anyone to consume goods.

e.g. Fish in the ocean

When one person catches fish, there are fewer fish for the next person to catch.
Yet these fish are not an excludable good because it is difficult to charge
fisherman for the fish that they catch.
4. Club Goods
Goods that are excludable but not rival.
1. Excludable
One can refuse other to use goods.

2. Non Rival
Benefit to one person does not reduce benefit of the other.

e.g. Fire Protection, Cable TV etc.

Consider fire protection in a small town. It is easy to exclude people from enjoying
this good. The fire department can just let their house burn down. Yet fire protection is
not rival. Firefighters spend much of their time waiting for a fire, so protecting an
extra house is unlikely to reduce the protection available to others. In other words,
once a town has paid for the fire department, the additional cost of protecting one
more house is small.
Free Riders & Cost- Benefit Analysis
Free Riders:
A person who receives benefit from good but avoid paying
for it.

Cost- Benefit Analysis:


A study that compares the cost and benefit to society of
providing a public good.
Till now we have studied that Govt. provides public goods
but the Govt. must decide what kinds of public goods to be
provided and in what quantities.
Example:

Govt. plans to built a highway, the total benefit should be


equal to the benefits gained by its use and to make these
decisions Govt. hire a team of economists to conduct a
study called
COST- BENEFIT ANALYSIS.
Common Resources & Tragedy of
Commons
Common resources are like public goods non excludable but they
are Rival in consumption as the use of a person effects the benefits
of others.
So the common resources give rise to another problem, which can
be avoided if the policy makers get concerned about how much to
use it. This problem is best understood from the classic parable
called the Tragedy of the Commons.
Tragedy of Commons
“The tendency of any resources that is unowned
and hence non excludable to be overused and
under maintained”.
SOME COMMON RESOURCES
1. Fish in the ocean
2. Congested or single roads
3. Wild life or seafood

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