Classifying and Managing Public Goods

Public Goods and Market Failures Revision Sheet

📌 The Essentials

• Goods are classified by excludability and rivalry.
• Public goods are non-excludable and non-rival; prone to free-rider problem.
• Common resources are rival but non-excludable; susceptible to overuse ("Tragedy of the Commons").
• Merit goods tend to be under-consumed without intervention.
• Market failures justify government actions like regulation or provision.
• Cost-benefit analysis helps assess whether a good should be supplied.
• Strategies for provision include regulation, taxation, and community management.

📖 Key Concepts

Excludability: Ability to prevent access to a good; if possible, the good is excludable.
Rivalry: Consumption by one individual reduces availability for others.
Public Goods: Goods that are both non-excludable and non-rival, e.g., national defense.
Private Goods: Excludable and rival, e.g., clothing or food.
Common Resources: Rival but non-excludable, e.g., fish stocks or public pastures.
Club Goods: Excludable but non-rival, e.g., cable TV or private parks.
Free Rider: Individual who benefits from a good without paying for it, risking under-provision.
Merit Goods: Goods that are under-consumed without government intervention, e.g., education.
De-merit Goods: Goods over-consumed despite social harm, e.g., cigarettes.
Tragedy of the Commons: Overuse of common resources due to lack of regulation, leading to depletion.