Let's begin today's lesson by discussing two goods that couldn't be more different from one another: a piece of pizza and a public park.
Obviously, we know that they are very different goods, but what is it that makes them different? What is it that makes them different to an economist?
The two concepts of rivalry and excludability help us to classify types of goods, like the two mentioned above.
Rivalry means that once a good is consumed, it is no longer available for consumption by another individual.
The public park is different. When you decide to take your dog for a walk at the park, other people can do the same thing. You can enjoy the same park at the same time as other people, so a public park is non-rivalrous.
Excludability is when a good is accessible to all individuals, but requires payment or special access.
On the other hand, if you took your dog to the public park and went for a run, you did not have to pay or gain special access to take a walk in the park. No one can exclude you from enjoying the public park; therefore, the park does not have excludability. It is non-excludable.
Next, we will discuss the different types of goods using these two concepts.
Private goods are goods that can be limited and therefore exclusive, and available for only limited consumption, which also makes them rivalrous.
So, private goods are both rival and excludable.
EXAMPLEThat pizza is a private good because it has both of these characteristics. Only you could consume it, and once you did, nobody else could, which makes it rival. You also had to pay for it, so it was excludable.
Public goods are the exact opposite. These are considered both non-rivalrous and nonexclusive.
EXAMPLEThe public park near your house is a public good because you can enjoy it at the same time as others and there is no way for them to make you have special access or exclude you from the public park.
Common goods are shared goods that are available to all members of a community.
A common good is neither completely private nor completely public. Like a private good, it is rival, but like a public good, it is non-excludable.
EXAMPLEFor example, we cannot exclude people from fishing in international waters, so in that regard, it is non-excludable. However, at the same time, when people over-fish, they deplete the water of fish for others, so it is rival.
Therefore, it is in between a private and a public good. We call it a common good because it is in common, which makes it rival, but we cannot exclude people from enjoying it.
This brings up the issue of "tragedy of the commons." Because common goods have this characteristic of non-exclusion, people tend to overuse, or over-consume them.
EXAMPLEFor example, it is hard to keep someone from overfishing in international waters, so the resource tends to get depleted.
Finally, club goods are goods are excludable and non-rivalrous.
Club goods are neither completely private nor public, in that they are non-rival, like public goods, but also excludable, like private goods.
EXAMPLEFor example, you have to pay to go the movies, so you can be excluded. In this regard, it's like a private good. However, once you are there, others can watch the same movie while you go, 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.
Here is a summary of these types of goods, with examples.
Food, clothing, most personal item purchases
Fish stocks, coal, timber
"Tragedy of the Commons"; Free-riders
Amusement parks, private clubs, movie theaters
National defense, radio signals
Now, what incentive does any private firm have to provide national defense or a public park?
They could not exclude people from enjoying the benefits of it, so there is little chance to ensure a profit.
Because of the inability to withhold people from enjoying benefits who do not pay, the private sector tends to "under-provide" public goods.
In these cases, if it is something that the government sees as necessary or beneficial to society, the government will provide them.
Keep in mind, though, that not all services and goods provided by the government are public goods.
Public simply refers to, in economics, the concepts of rivalry and excludability. If it meets the criteria for a public good, it is, but simply because it is provided by the government does not make it a public good.
EXAMPLEFor example, K-12 education is "publicly" provided by the government to all children in the United States, but through the lens of the concepts of rivalry and excludability, in many ways it actually has characteristics that make it a private good.
Source: Adapted from Sophia instructor Kate Eskra.