Chapter 11 focuses on public goods, private goods, common goods, and natural monopolies. What kind of good something is classified as is determined by the excludability and rivalry of consumption. Excludability depends on whether or not a person can be prevented from using a good, and the rivalry of consumption depends on whether or not a person’s use of one good decreases another person’s use of the same good. Private goods are both excludable and have a rival in consumption, common goods have only a rival in consumption, natural monopolies only have excludability, and public goods have neither.
A primary concern with public goods is the idea of free-riders, people who take advantage of a good but don’t pay for it. Therefore, in an effort to prevent the free-rider problem, governments subsidize private provider (changing a private good into a public good). Governments usually end up providing a public good if the social benefit is greater than the cost. Some of the most important examples of public goods are national defense, basic research, lighthouses, and programs to reduce poverty (such as food stamps). However, some public goods have to follow a cost benefit analysis, which is a study for comparing the costs and benefits to society of providing a public good. This idea is applied to the value of a life, when people determine the own value of their life intrinsically.
Similar to free-riders, common resources have their own problem which is the Tragedy of the Commons. The problem illustrates the idea of the overuse of common resources, using sheep and shepherds as an example. Common resources to know and remember are clean air and water, congested toll roads, and food resources. Property rights are important in how they could causes a market failure because resources don’t have an owner associated with it. Examples of property rights are cows being raised as a private good instead of hunted and pollution permits.
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