Reading notes--Principles of Economics (chapter11)

Summary

Chapter 11 is Public Goods and Common Resources. This chapter divides the goods into four categories by using the definition of excludability (he property of a good whereby a person can be prevented from using it) and rivalry in consumption(the property of a good whereby one person’s use diminishes other people’s use).

Private goods

• Rival in consumption
• Excludable
• e.g ice-cream cones, clothing, congested toll roads

Club goods

• Not rival in consumption
• Excludable
• e.g satellite TV, fire protection, uncongested toll roads

Common resources

• Non-excludable
• Rival in consumption
• e.g fish in the ocean, the environment, congested non-toll roads
• The common resources tend to be used excessively.

Public goods

• Non-excludable
• Not rival in consumption
• e.g tornado siren, national defense, uncongested non-toll roads
• People who receive the benefit of a good but avoid paying for it is called free riders.

Definitions

1. Excludability– the property of a good whereby a person can be prevented from using it

2. Public goods– good that are neither excludable nor rival in consumption

3. Free rider– a person who receives the benefit of a good but avoids paying for it

4. Rivalry in consumption– the property of a good whereby one person’s use diminishes other people’s use

5. Common resources– goods that are excludable but not rival in consumption

6. Cost-benefit analysis– a study that compares the costs and benefits to society of providing a public good

7. Private goods– goods that are both excludable and rival in consumption

8. Club goods– goods that are excludable but not rival in consumption

9. Tragedy of the Commons– a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1.Common resources are_____(Correct answer: C)

a. efficiently provided by the market forces

b. underprovided in the absence of government

c. overused in the absence of government

d. a type of natural monopoly

My wrong answer: B