Chapter 11

Chapter 11 observes the problems that appear with goods that don't have a market price and shows their effects on the market. Two characteristics of goods are excludability and rival in consumption. Excludability refers to whether one can be prevented from using a good. Rival in consumption refers to whether someone's use of good diminishes another person's ability to use it. Goods with these characteristics are split into four categories: private goods, public goods, common resources, and natural monopolies. Private goods are both excludable and rival in consumption. Most goods tend to be private goods. Public goods are neither excludable nor rival in consumption. Common resources are rival in consumption but not excludable. Natural monopolies are excludable but not rival in consumption. A free rider is someone who benefits from a good without paying for it. Since public goods are not excludable, the free-rider problem stops the private market from producing them. Cost-benefit analysts have the tough job of finding the cost and benefits of a good to society and their conclusions tend to just be approximates. Common resources arise the problem of Tragedy of Commons, which is a story explaining why common resources get used more than is desirable. The lesson of the Tragedy of Commons is that when one person uses a common resource, it reduces other people's pleasure of it. This illustrates a negative externality that the government can solve through taxes/regulation or by converting the common resource to a private good. I thought this chapter was well-explained through the multiple examples of common resources and public goods.