Lecture Notes: Chapter 16 – Public Goods and Common Resources
Based on Microeconomics: Canada in the Global Environment (11th Edition)
Introduction
Markets work well for many goods and services where consumers pay for what they use and
producers earn revenue from what they sell. But some goods defy the typical rules of supply and
demand. Public goods and common resources present unique challenges that lead to market
failure. In this chapter, we distinguish between different types of goods, explore the free-rider
problem associated with public goods, and analyze the tragedy of the commons related to
common resources. Understanding these challenges helps explain why government intervention
or collective solutions are often necessary to achieve efficiency.
1. Classification of Goods
Goods and resources can be classified along two dimensions:
Rivalry in consumption: Does one person’s use reduce availability for others?
Excludability: Can people be prevented from using it?
Four Types of Goods:
Excludable Non-Excludable
Rival Private Goods Common Resources
Non-Rival Club Goods Public Goods
1.1 Private Goods
Excludable and Rival
People pay to use them; one person’s use prevents others from using the same unit.
Examples:
Food
Clothing
Cars
Markets efficiently allocate private goods.
, 1.2 Public Goods
Non-Excludable and Non-Rival
Cannot prevent non-payers from using them, and one person’s use doesn’t reduce
availability.
Examples:
National defense
Public fireworks displays
Clean air (in some contexts)
Markets underprovide public goods due to the free-rider problem.
1.3 Common Resources
Non-Excludable but Rival
Everyone can use them, but use by one person reduces availability for others.
Examples:
Fisheries
Public pastures
Forests
Markets tend to overuse common resources, leading to the tragedy of the commons.
1.4 Club Goods
Excludable but Non-Rival
People can be excluded, but one person’s use doesn’t reduce others’ use—at least up to a
point.
Examples:
Netflix subscriptions
Private parks or sports clubs
2. The Free-Rider Problem and Public Goods
Based on Microeconomics: Canada in the Global Environment (11th Edition)
Introduction
Markets work well for many goods and services where consumers pay for what they use and
producers earn revenue from what they sell. But some goods defy the typical rules of supply and
demand. Public goods and common resources present unique challenges that lead to market
failure. In this chapter, we distinguish between different types of goods, explore the free-rider
problem associated with public goods, and analyze the tragedy of the commons related to
common resources. Understanding these challenges helps explain why government intervention
or collective solutions are often necessary to achieve efficiency.
1. Classification of Goods
Goods and resources can be classified along two dimensions:
Rivalry in consumption: Does one person’s use reduce availability for others?
Excludability: Can people be prevented from using it?
Four Types of Goods:
Excludable Non-Excludable
Rival Private Goods Common Resources
Non-Rival Club Goods Public Goods
1.1 Private Goods
Excludable and Rival
People pay to use them; one person’s use prevents others from using the same unit.
Examples:
Food
Clothing
Cars
Markets efficiently allocate private goods.
, 1.2 Public Goods
Non-Excludable and Non-Rival
Cannot prevent non-payers from using them, and one person’s use doesn’t reduce
availability.
Examples:
National defense
Public fireworks displays
Clean air (in some contexts)
Markets underprovide public goods due to the free-rider problem.
1.3 Common Resources
Non-Excludable but Rival
Everyone can use them, but use by one person reduces availability for others.
Examples:
Fisheries
Public pastures
Forests
Markets tend to overuse common resources, leading to the tragedy of the commons.
1.4 Club Goods
Excludable but Non-Rival
People can be excluded, but one person’s use doesn’t reduce others’ use—at least up to a
point.
Examples:
Netflix subscriptions
Private parks or sports clubs
2. The Free-Rider Problem and Public Goods
