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Classifying Goods and some Problems
part 1
Question:
Why are markets good at making some things but not other things?
A classical example in textbooks is
called “the light house problem”
In the old days ships at sea needed them, to be prevent from
crashing in a storm.
They can use it for free,
the problem was how do you get
them to pay for it?
Actually this example is bad,
they often did pay, but the lesson is
still true.
Actually this example is bad,
they often did pay, but the lesson is
still true.
Some goods can be used for free, so if
you can’t make someone pay for it, then no one would make it, so then
what?
Classifying Goods and some Problems:1.) Classification and Good
Types3.) Problems of the Non-Excludables2.) Providing Public Goods
Draw this big enough to be able to write a couple of words within each box and on the outside of the box.
Classification and Good Types
Excludable - it is possible to prevent a person from enjoying its benefits.
Classification and Good Types
Excludable
Classification and Good Types
- it is impossible to prevent a person from benefiting from it.
Excludable
Non-excludable
Classification and Good Types
Excludable Non-excludable
Classification and Good Types
- its use by one person decreases the quantity available to someone else.
ExcludableNon-excludable
Rival
Classification and Good Types
Excludable Non-Excludable
Rival
Classification and Good Types
- its use by one person does not decrease the quantity available to someone else.
ExcludableNon-excludableRival
Non-Rival
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
Classification and Good Types
Classifying Goods and some Problems:1.) Classification and Good
Types2.) Problems of the Non-Excludables
Private goods - A good or service that can be consumed by only one person at a time and only by those people who have bought it or own it.
Classification and Good Types
Private Goods
A private good is both rival and excludable.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
- A good or service that can be consumed simultaneously by everyone and no one can be excluded from enjoying its benefits.
Private goods
Public goods
Classification and Good Types
Private Goods
Public Goods
Excludable Non-Excludable
Rival
Non-Rival
A public good is both non-rival and non-excludable.
Classification and Good Types
- a firm that produces at lower cost in the market than many more firms can.
(Artificially Scarce goods)(Toll goods)
Private goodsPublic goods
Natural Monopolies
Classification and Good Types
Private Goods
Natural Monopolie
s
Public Goods
A good or service that is both non-rival and excludable is produced by a natural monopoly.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
- A resource that can be used only once but no one can be prevented from using what is available.
Private goodsPublic goodsNatural Monopolies
Common Resources
Classification and Good Types
Private Goods
Common
Resource
Natural Monopolies
Public Goods
A Common Resource is both rival and non-excludable.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
Private Goods
Common Resource
Natural Monopolies
Public Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
Classifying Goods and some Problems:1.) Classification and Good
Types
2.) Problems of the Non-Excludables
Good Types, a little more detail…
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Regular markets supply these best because a price can easy be attached to it.
Private goods can be efficiently produced and consumed in a competitive market that maximizes total surplus.
Private goods
Good Types…a little more detail
Why Markets Can Supply Only Private Goods Efficiently:
-You can stop someone else from using it, so you can make money off of it.
Good Types…a little more detail
Goods that are Excludable
Goods that are Rivals
Result:
- There is not an infinite 无限 supply of them, so you can make money off of it.
Private goods can be efficiently produced and consumed in a competitive market that maximizes total surplus.
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Natural Monopolies type goods can be efficiently produced and consumed in a market, but since the supply is virtually unlimited only a few companies control the supply.
Like private goods but with very few needed suppliers to produce the efficient amount of goods.
Natural Monopolies
Good Types…a little more detail
Why Markets Can Supply Only Private Goods Efficiently:
-You can stop someone else from using it, so you can make money off of it.
Good Types…a little more detail
Goods that are Excludable
Goods that are Rivals
Result:
- There is not an infinite 无限 supply of them, so you can make money off of it.
Private goods can be efficiently produced and consumed in a competitive market that maximizes total surplus.
Natural Monopolies type goods can be efficiently produced and consumed in a market, but since the supply is virtually unlimited only a few companies control the supply.
Why Markets Can Supply Only Private Goods Efficiently:
Good Types…a little more detail
Goods that are Excludable
Goods that are Non-rivals
-You can stop someone else from using it, so you can make money off of it.
- Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural”
Result:
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Regular markets supply these best because a price can easy be attached to it.
Private goods can be efficiently produced and consumed in a competitive market that maximizes total surplus.
Private goods
Good Types…a little more detail
Public goods are in theory unlimited, so it’s hard to put a price on them so markets don’t provide these as much.
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods
Good Types…a little more detail
Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value the good higher than the cost of providing it. Public Goods have these qualities and therefore governments often have to produce them.
Good Types…a little more detail
Goods that are Non-excludable
-You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use.
Goods that are Non-rivals
- Since there is an infinite supply of these, it is difficult to control and a market with very few suppliers seems “natural”
Result:
Classifying Goods and some Problems:1.) Classification and Good
Types3.) Problems of the Non-Excludables2.) Providing Public Goods
-A person who enjoys the benefits of a good or service without paying for it.
Because of the free-rider problem, the market would provide too small a quantity of a public good.
To produce the efficient quantity, government action is required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider
Common resources have the biggest problem of them all
Private goods
Common Resource
Natural Monopolie
s
Public goods
Excludable Nonexcludable
Rival
Nonrival
Problems of the Non-Excludables
- Since there is a limited supply of these, once they are gone there is no more.
You can’t stop me from consuming the good, and more consumption by me means less of the good available for you.
Why Markets don’t do a good job with these types:
Goods that are Non-excludable
-You can’t stop someone else from using it, so you can’t make money off of it and thus are free to use.
Goods that are Non-rivals
Result:
Problems of the Non-Excludables
Go watch this movie called “The Lorax” it’s
a famous Dr. Seuss children’s book that show the main idea that is the problem.
So to Summarize so far…
Private Goods
Common Resource
Natural Monopolies
Public Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival
The end of part 1 Thanks