Characteristics of Goods
Rival (in consumption)
good that cannot be consumed by more than one person at a time
Nonrival (in consumption)
good that can be consumed jointly by groups of people
- suppliers can prevent non-payers from consuming the good
- suppliers cannot prevent those who did not pay for an item from enjoying the benefits of the good
Four Types of Goods
Rival and excludable
Excludability is crucial because if a supplier could not discriminate who gets their particular item or not, he or she would have no incentive to produce
There would exist a free-rider problem in which no rational consumer would choose to pay for a good or service if provided (or nonexcludable)
If items are nonrival, then an inefficiently low quantity of items are consumed
Most items (cars, food, phones, pencils, jeans, stapler, markers, etc) are private goods in which the market functions properly
Nonrival and nonexcludable
Suffer from the free-rider problem because private firms generally produce inefficiently low quantities
Public radio, for example, or scientific research sometimes rely on private donations
In the UK, a license fee (~$230 in 2010) is charged to television owners but is made excludable by using "television detection vans"
Most people agree that the government should provide national defense, the legal system, fire protection, etc.
Rival and nonexcludable
Since you can't stop me from consuming the good and more by me means less of the good for you, there's an incentive to overuse
Tragedy of the commons -- depletion of a shared resource by individuals acting rationally according to each one's self interest, though contrary to the group's long-term best interest -- Negative externality
Example: Fish in river
Artificially Scare Resources
Nonrival and excludable
Marginal cost to society watching pay-per-view is zero
Yet cable companies prevent those who haven't paid from watching
Computer software and audio files share this same characteristic
This is allocatively inefficient since the P is greater than the MC, but producers will have no incentive to produce a product unless profit is generated
Healthcare and Government
Should the government get involved in healthcare?
This is a normative question, but it is useful for both proponents and opponents of nationalized healthcare to consider the following two questions
Is it rival or nonrival?
Is it excludable or nonexcludable?
So healthcare is common resource