The History of Nanotechnology

Microeconomics 1
Lecturer: Adam Allanson Lecture 21
18 April 2013

Public Goods & Common Resources
GKM Chapter 11 Case Studies 4.5 & 4.6

Today’s Learning Objectives
1. Define public goods and common resources.
2. Understand how public goods and common resources can lead to market failure:  public goods will be under-provided due to the “free rider problem”

 common resources will be over-used
3. Understand how the market and/or government may seek to address this.

Four categories of goods
Goods can be categorised on the basis of whether they are excludable and rival in consumption.
• Excludable: other people can be prevented from using the good. • Rival in consumption: one person’s use of the good diminishes other people’s use. There are four categories of goods: private; public; club; and common resources.

Four categories of goods

GKM Figure 11.1

Rival in consumption? Yes No Private goods • Ice creams Yes • Clothing
• Congested toll roads

Excludable? No

1. Private good: A good or service that is both excludable and rival in consumption.

Four categories of goods

GKM Figure 11.1

Rival in consumption? Yes No Private goods • Icecreams Yes • Clothing
• Congested toll roads

Excludable? No

Public goods • National defence • Knowledge

• Uncongested non-toll roads
2. Public good: A good or service which: (1) an additional consumer does not ‘use up’ or prevent another’s use of it; and (2) no one can be excluded from consuming the good or service. It is neither excludable or rival in consumption.

Four categories of goods

GKM Figure 11.1

Rival in consumption? Yes No Private goods • Icecreams Yes • Clothing
• Congested toll roads

Excludable?

Common resources • Fish in ocean No • The environment
• Congested non-toll roads

Public goods • National defence • Knowledge

• Uncongested non-toll roads

3. Common resource: A good where no one can be denied access to the resource, but one person’s use