Chapter 11

Chapter eleven discusses public goods (good that are neither excludable nor rival in consumption) and common resources (rival in consumption but not excludable), both of which are closely related to the study of externalities. Goods in an economy are grouped according to their excludability and its rivalry of consumption. Excludability is the property of a good whereby a person can be prevented from using it. Rivalry in consumption is the property if a good whereby one person's use diminishes other people's use. Public goods in a private market often encounter the free-rider (a person who receives the benefit of a good but avoids paying for it) problem. Because it is impossible to prevent someone from obtaining the good it's difficult to to make them pay for it because people are cheap like that and like free stuff. The best way to make a public good work is to use the government. The government can use tax to fund public goods. The government decides what public goods to provide and the quantity by conducting a cost-benefit analysis which is a study that compares the cost and benefits to society of providing a public good. Today's important goods include National Defense, Basic Research, and the fight against poverty. Common Resources deal with a separate problem that is understood by the "parable" (whatever that is) called the Tragedy of the commons which illustrates why common resources get used more than is desirable from the standpoint of society as a whole.