4.
What is a private good?
Answer: Look at 3 basic principles:
- Principles of exclusion
Can you exclude a non-payer?
The non-payer can be excluded from paying the good.
Public goods: Streetlighting, bus stops.
(1) Principles of exclusion: Yes (Private) No (Public)
Public goods are available to everyone irrespective of you pay or not.
Bread is a private good. The non-payer is excluded. It is available only to those who pay.
(2) Principle of rivalry: Yes (Private) No (Public)
If one day you come and buy 5000 breads, you exclude others.
Public roads are public goods, even if someone use more of it, it does not affect the utility of the goods.
Pure public good: Subject to non-exclusion and non-rival
Police force is private good as when people consume more, the service to others is affected. It is rivalry.
(3) The principle of divisibility. Yes (Private) No (Public)
If you cannot devise the good, it becomes a public good.
Example: Defense become a public good/defend everyone if there is a war irrespective of those who pay or do not pay.
Water is divisible by pipes therefore private goods go only to those who pay. A car is a private good because you have paid for the car.
Electricity is a private good because it is available to only those who pay.