In the realm of business, what are the others

things to considers in terms of dealing with

goods and services we render and offer to our
customers?
Public Goods and Common
Resources
CHARACTERISTICS OF GOODS

Excludability: A person can be prevented from

using it

Rivalry in consumption: One person’s use

diminishes other people’s use
DIFFERENT TYPES OF GOODS

 Private goods
Excludable & Rival in consumption

 Public goods
Not excludable & Not rival in consumption
 Common resources
Rival in consumption & Not
excludable

 Club goods
Excludable & Not rival in
consumption
IMPORTANT PUBLIC GOODS

 National defense
 Basic research
 Anti-poverty programs (finance by taxes)
 Welfare for needy families
 Food stamps
 Subsidized housing
 Excludability Non - Excludability

PRIVATE GOODS COMMON RESOURCES

Rival in
Consumption Pizza Public Library

CLUB GOODS PUBLIC GOODS

Non - Rival Netflix National Defense
PUBLIC GOODS AND COMMON RESOURCES

Externalities arise because something of value

has no price attached to it

Private decisions about consumption and

production can lead to an inefficient outcome
PUBLIC GOODS

 Free rider: Person who receives the benefit of a

good but avoids paying for it

 Public goods are not excludable, so

people have an incentive to be free riders

 Prevents the private market from

supplying the goods

Market failure
FREE-RIDERS

How can the government remedy the free-rider

problem with streetlights (a type of public
good)?
GOVERNMENT REMEDIES

If total benefits of a public good > total costs

Government could provide the good, paying with
tax revenue
 Society would be better off

However, measuring the “benefit” can be

difficult.
 What is the value of the benefit
provided by streetlights?
COMMON RESOURCES

NOT EXCLUDABLE

 Cannot prevent free riders from

using.

 Little incentive for firms to

provide.

 Role for government: seeing that

they are provided
RIVAL IN CONSUMPTION

 Each person’s use reduces others’

ability to use

 Role for government: ensuring they

are not overused
IMPORTANT COMMON RESOURCES

 Clean air and water

 Congested roads

 Fish, whales, other wildlife

COMMON RESOURCES

 Tragedy of the commons: shows

why common resources are used
more than desirable

 Social and private incentives differ

 Negative externalities result

GOVERNMENT REMEDIES

 Regulate the use of a resource

 Corrective taxes
 Hunting and fishing licenses
 Entry fees to congested parks

 Selling permits to allow for use of the resource

 Cap and trade
SELL ME YOUR CLIMATE BOMBS
NPR PLANET MONEY
How would an economist address the problem?

Public goods, common resources,

and externalities
 How can the government prevent the
overconsumption of common resources?

 How can government policies protect and preserve

exhaustible natural resources?

Application: The Wicked Problem of Water Quality

in the Mississippi River Watershed