Hi, welcome to Economics. This is Kate. This tutorial is called Defining Public and Private and the "Tragedy of the Commons". As always, my key terms are in red and my examples are in green.
In this tutorial, we'll define the concepts of rivalry and excludability. You'll understand how both of these concepts help us to categorize goods as either public, private, club, or common. And finally, we'll talk about how the "tragedy of the commons" happens with common goods.
So let's start with two goods that couldn't be more different from one another, a piece of pizza and a public park. Obviously, like I said, we know that these are very different goods. But what is it that makes them different? And what is it that makes them different to an economist?
Well, these two concepts of rivalry and excludability are going to help us to classify types of goods, like the two that I just mentioned. So first of all, let's talk about rivalry. Rivalry means that once a good is consumed it's no longer available for consumption by anybody else.
So for example, let's look at my piece of pizza. When I eat a piece of pizza, no one else can then eat that same piece of pizza. It's gone. I have consumed it. And nobody else can share in that. So my consumption of it prevents someone else from enjoying it. So it does have the characteristic of rivalry.
But the public park is different. When I decide to take my dog for a walk at the park, other people can do the same thing. I can enjoy the same park at the same time as other people. So a public park is non-rival.
Then there's excludability. Excludability is when a good is accessible to all individuals, but requires payment or special access.
So again, with my piece of pizza, I can be excluded from enjoying this piece of pizza. I had to pay for it. If I didn't pay for it, I would be excluded from consuming it.
But with the public park, I took my dog there. We went for a run. I did not have to pay or gain any kind of special access to take a walk in the public park. No one can exclude me from enjoying that park near my house. So the public park does not have excludability. It is non-exclusion.
So now we get into the different types of goods using these two concepts. Private goods are goods that can be limited, and so they are exclusive. And they're available for only limited consumption. And so that also makes them rivalrous.
So private goods are both, like I just said, rival and excludable. So my pizza, then, was a private good because it had both of these characteristics. Only I could consume it. Once I did, nobody else could. That was rival. And I had to pay for it, so it was excludable.
Whereas public goods are the exact opposite. These are considered both non-rivalrous and non-exclusive. So they are both, like I said, non-rivalrous and non-exclusive. So the public park near my house is a public good because I can enjoy it at the same time as others and there's no way for them to make me have special access, or exclude me from the public park.
Other classic examples of public goods are things like national defense, where whether I pay my taxes or not, you can't exclude me from enjoying the benefits of our national defense. And everybody enjoys in that same national defense. Radio signals are another example of a public good.
Now we have some special circumstances. Common goods are shared goods that are available to all members of a community. So they're neither completely private nor completely public. Like a private good, it is rival. But like a public good, it's non-excludable.
So an example that a lot of people use is that we cannot exclude people from fishing in international waters. So in that regard, it's non-excludable. But at the same time, when people over-fish, they ruin other people's chances. And so it is rival.
So it's in-between a private and a public good. That's what we call a common good. Because is in common, but that's what makes it this rival thing. We cannot exclude people from enjoying it.
So that brings up this issue of "tragedy of the commons". Because common goods have this characteristic of non-exclusion, people tend to overuse, or overconsume them and ruin it for the rest of us. So using that example, it's really hard to keep someone from overfishing in international waters. So the resource tends to get depleted.
Finally, we have club goods. Club goods are goods are excludable, but they're non-rivalrous. So also, neither completely private nor public because they are non-rival, like public goods, but they're like private goods in that they are actually excludable.
So let's think about the movie theater. I have to pay to go to the movies. So in that regard, it's like a private good. But once I'm there, others can watch the same movie while I do. So it's non-rival.
A free-rider is an individual who consumes more of a common good, decreasing the opportunity of another individual to consume their proportionate share. And so here is a summary of these types of goods. You might want to refer back to this at any time. I just made a chart here with some examples.
So here we have our pure private goods, things like food, clothing, almost any personal item purchase where you can be excluded because of having to pay for it. That would be a private good where it is also rivalrous. I consume it, so nobody else can.
The opposite end of the spectrum were public goods. Things that are non-excludable and non-rivalrous. And then those ones in the middle. The "tragedy of the commons" occurs here. And this is actually where we get to see most of those free-riders. Things like fish stocks, coal, timber, where it's hard to exclude people, but unfortunately, when a lot of people go ahead and use more than their share of it, those free-riders ruin it for the rest of us because it's rivalrous.
In this here, you can exclude people from going into amusement parks, from private clubs, like country clubs, and movie theaters because you have to pay, or belong, or have some kind of membership, but it's non-rivalrous.
I have a question for you here. What incentive does any private firm have to provide national defense or a public park for that matter? Because they can't exclude people from enjoying the benefits of it, there's really little chance to ensure that they could profit from going into this venture. So because of that, the private sector tends to really underprovide public goods. And so in these cases, if it's something that the government sees necessary, or helpful, or beneficial to society, the government will tend to provide them.
Keep in mind, this is something definitely to note, not all services and goods provided by the government, that's not what makes them public goods. Public simply refers to, in economics, the concepts of rivalry and excludability. So if it meets the criteria for a public good, it is. Just because it's provided by the government does not make it a public good.
So for example, K through 12 education is publicly provided by the government to all children in the United States, but if we look at those concepts of rivalry and excludability, in many ways, it actually has characteristics that make it more of a private good. So that's just something to keep in mind.
So in this tutorial, we talked about how rivalry and excludability are two ways of helping us to categorize whether goods are public, private, common, or club. And we looked at how the "tragedy of the commons" refers to the idea of how some goods tend to be overconsumed since people can't be excluded from them. And then finally, we talked about how public goods will be underprovided. And so, often, the government will step in and provide those types of goods. Thank you so much for listening. Have a great day.