Short on time? This page is the recap. For explanations, graphs and worked examples, use the full study guide.
Recap
- Rival: one person’s use leaves less for others. Non-rival: one more user takes nothing away from the rest.
- Excludable: non-payers can, in practice, be kept out. Non-excludable: they cannot, or only at a prohibitive cost.
- Private goods (rival, excludable) are provided well by markets.
- Public goods (non-rival, non-excludable) face the free rider problem: people can benefit without paying, so private firms cannot cover their costs. Government usually provides them and funds them with taxes.
- Open-access resources (rival, non-excludable) are overused: each user ignores the cost their use imposes on other users.
- Governments sometimes provide private goods such as schooling free of charge. That does not make them public goods.
Key relationships
| Type | Rival? | Excludable? | Market problem | Typical response |
|---|---|---|---|---|
| Private good | yes | yes | usually none | leave to the market |
| Public good | no | no | underprovided (free riding) | government provision, funded by taxes |
| Open-access resource | yes | no | overused | quotas, licences, fees, property rights |
| Club good (background term) | no | yes | not a focus of the course | often sold by firms |
| Test | How to use it |
|---|---|
| Provide a public good? | Provide if total benefit (sum over all users) ≥ cost |
| Efficient use of an open-access resource | Add users while the extra output each adds ≥ its cost, not while each user’s own share ≥ cost |
| Equal tax to fund a public good | Tax per person = cost ÷ number of payers; some may still lose |
Assumptions
- People and firms are rational: they weigh their own benefits and costs.
- “Excludable” is judged by what is practical, not by what the law allows.
Mistakes to avoid
- Saying a good is public because the government provides it.
- Calling an open-access resource a public good. It is rival.
- Confusing non-rival with free or unlimited.
- Using each user’s own catch (the average) instead of the extra catch (the marginal) when finding the efficient number of users.
- Forgetting that a tax-funded public good can leave some taxpayers worse off even when society gains.
- Explaining underprovision without the word non-excludable and the free rider incentive.
Quick self-check
- Is a seat on a crowded commuter train rival? Is it excludable? (Rival and excludable: a private good.)
- A public weather-warning broadcast costs $2,500 a year. Each of 250 residents values it at $12. Should it be provided? (Total benefit 250 × $12 = $3,000 > $2,500, so yes; net gain $500.)
- Why is groundwater shared by many farms overused? (It is rival but non-excludable, so each farm ignores the cost its pumping imposes on the others.)
Next: practice questions.