Public Goods and Common Resources

Different Types of Goods

• Excludable - When you can stop certain people from using a product for free. Example: Movie theatres - you can exclude people from entering if they do not pay.

• Rivalrous - If one person uses a product, that prevents someone else from using it Example: Airplane seats - if you bought a specific seat then someone else cannot use that same seat.

Free Rider Problem

• The free rider problem is when some people get to use a product for free.
• This is a market failure because it's not fair for people that paid for the product. To fix this, the government provides these services and products. They are called public goods. Example: National defense

Tragedy of the Commons

• Tragedy of the Commons applies to common goods. It is when a good or resource is likely to be overused because it is non-excludable.
• It basically means more people will use the resource than what is desirable for society and one person's use of the resource reduces the availability of it for others (rivalrous). Example: If many farmers are letting all their cows feed off grass on the same land, the grass might run out.
• Solution for Tragedy of the Commons - The government can put a fine if people use that resource too much or they can issue permits so that only a certain number of people can use the resource. Example: if certain sharks are going extinct, the government can put a fine on people that are caught fishing that type of shark.