GOODS

INTRODUCTION:
Some goods are free to the consumer like
beaches, lakes and playgrounds. When goods are
available without prices, market forces that
normally allocate resources are absent. However,
government are always there to potentially
remedy market failure and economic well-being.
 THE
DIFFERENT KINDS
OF GOOD
THE DIFFERENT KINDS OF GOOD
According to N. Gregory Mankiw (Study
Guide for Mankiw’s Principles of Economics, 6th),
there are two characteristics of goods that are
useful when defining types of goods and that is…

1. Excludability
2. Rivalry in Consumption
EXCLUDABILITY
The property of a good whereby a person can be prevented from using
it. A good is excludable if a seller can exclude nonpayers from using it and
not excludable if a seller cannot exclude nonpayers from using it (radio
signal).

RIVALRY IN CONSUMPTION
The property of a good whereby one’s person use of a good
diminishes other people’s use. A good is rival in consumption if only one
person can consume the good (food) and not rival if the good can be
consumed at the same time (streetlight).
With these characteristics, goods can already be divided into four categories:

• PRIVATE GOODS –
both excludable and rival in consumption
• PUBLIC GOODS –
However, the two types of
neither excludable nor rival in consumption good that are not excludable
and thus are FREE are
• COMMON RESOURCES –
PUBLIC GOODS &
rival in consumption but not excludable COMMON RESOURCES.
• CLUB GOODS –
excludable but not rival in consumption
 PUBLIC GOODS
Public goods are difficult for a private
market to provide because of the free rider
problem (a person who receives the benefit but
avoids paying it). Because public goods are not
excludable, firms cannot prevent nonpayers
from consuming the good and thus, there is no
incentive for a firm to produce a public good.

An example of a public good is a

streetlight.
 Another example of an important public good are national
defense, basic research that produces general knowledge and
programs to fight poverty.
 Some goods can switch between being public goods and
private goods depending on the circumstances. For example,
lighthouse is a public good if the owner cannot charge every ship that it
passes the light. A lighthouse becomes a private good if the owner can
charge the port to which the ships are traveling.

On the other hand, when a private market cannot produce a

public good, government must decide whether to produce the
good. Their decision tool is often cost-benefit analysis: a study that
compares the costs and benefits to society of providing a public
good.
 COMMON RESOURCES
Common Resources are not excludable but are rival in
consumption (e.g. fishes in the ocean). Therefore common
resources are free, but when one person uses it, it diminishes other
people’s enjoyment of it. The outcome of a common resource is
that the consumers do not take into account the negative impact
of their consumption, resulting to excessive use
 Some important common resource are clean air and water, congested
nontoll roads, and fish, whales and other wildlifes. Private decision makers use
a common resource too much so government regulate behavior or impose
fees to reduce the problem of overuse.