Public Goods (Rivalry and Excludability)

which of the following is an example of a product that is nonexcludable and rivalrous? This is a topic that many people are looking for. is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, would like to introduce to you Public Goods (Rivalry and Excludability). Following along are instructions in the video below:

“Good in the world could either be rival or non rival. What that means is is whether one person consumes the good or not whether that affects somebody else s to consume it so here s an example of a good that s not rival well the military. Me being protected by the us military doesn t really affect anyone else s ability to be protected by the us military. Same with air.

You know so those are non rival good. One person s ability to use it doesn t affect the others so rival goods are you know for example pizza. I m eating a slice of pizza you can t also eat that same slice of pizza that s what makes that arrival so unrelated to that any good can also either be excludable or not excludable excludable means that you can prevent people who didn t pay from from using it and not excludable is whether they pay for it or not it s possible for them to be able to consume it so that s what that is so now any good in the world. Then can fall into one of four categories either its rival and excludable and rival are not excludable or non rival.

An excludable or non rival and not excludable so up until now in this whole course. We ve only talked about goods that fall into this category. And those are called private goods. So everything we ve talked about in the whole class private goods.

That s what that is so let s take pizza for example as i was saying that s rival in that if i m having it you can t also have that same slice of pizza. And it s also excludable because you can t just find pizza for free or use it unless you paid for it. So that s what made it makes it excludable. Now.

What s an example of a good that s rival so you know one person using it still affects somebody else s ability to use it. But it s not excludable meaning anybody could use it well for example. A public library. You know if you and i were to take a road trip go all the way to kansas or something and go to a public library and sit on a table and study economics.

Technically nobody can stop us we could do it it s not excludable you can t exclude non pears from just going in and using the space. Even though you know i ve never paid tax taxes in kansas. But either way on non payers can still use that good and so it s not excludable. But it is rival because if we re using a specific table in the library somebody else can t use that same table because at the end of the day there s a limited number of tables.


So it s possible for it to get crowded and filled so that is an example of what s called a common resource. So a public library is an example of a common resource. If you were to have a you know a swimming pool in your community or something that anyone can use that s an example of a common resource. So common resource goods are not excludable.

But rival now what about a good that s non rival. But excludable well the name for that is called artificially scarce and artificially scarce good. Let s think about what this. Means.

This. Means. That it s excludable meaning. If you don t pay for it you can t use it only payers people who pay for it can use it.

But it s non rival meaning. Whether i use it or you use it you know doesn t it doesn t me using it doesn t affect your ability to use it an example of artificially scarce good here is netflix for example. Me watching a particular show on netflix really doesn t influence your ability to watch that same show on netflix at the same time if you wanted to so it s really non rival. So there s that but it s also excludable because if you didn t pay for it you actually can t use it you can exclude people and you can imagine where the name comes from because of that really it s a marginal cost is zero.

It cost nothing to make an extra unit of to have one other person on netflix and so it s artificially scarce so because even though the marginal cost is zero. You know the prices in. Co you re not it s not available for free you can charge 799. A month for netflix and so it s excludable and so that s what makes it artificially scarce and finally a good that s non rival and not excludable.

That s called a public good and so a public good is something like the military for example where it s non rival. Me being protected doesn t affect your you being protected. But it s also not excludable you can t say hey you re not going to be protected by the us. You know because you didn t pay taxes or something technically everyone s protected so at the end of the day.


It s not excludable and nonrival and public goods are usually something that the government that it s it s efficient usually for the government to provide that no sock a bit about what the free rider. Problem is it s basically a situation that arises when you have a non excludable good. So that means you can t prevent people from using your good. Now.

That s just saying. Let s say fireworks. You know if you were to light. A bunch of fireworks.

And you know and to enjoy. And well you can t really stop other people around you from enjoying it as well you know it s not excludable. So even though they didn t really pay for it that you know they re still getting to enjoy it so that s that s the problem. The problem is that you know free rider.

Other people get to enjoy it so now if everyone in a town is thinking about getting fireworks. Usually the problem is anyone on their own is probably going to think something like ah you know somebody else is probably gonna get fireworks. Oh. I don t need to really pay for them.

I ll just get two free right and enjoy them. But then the problem with that is usually everybody thinks like that and so nobody ends up getting fireworks. And so that s sort of a problem that arises and finally let s talk a little bit about what public goods are how you solve problems involving them now kind of like the free rider problem. The issue is that you know not everyone s gonna you re not gonna make the efficient decision.

If everyone s just thinking one individual at a time. And so the efficient thing to do is usually to have everybody kind of collectively make decisions. Because hey everybody s collectively enjoying that same good. And so let s take a situation.


Where you know you live in an apartment building. And there s ten people in your apartment building. And you guys are deciding whether or not to hire a security guard and let s say. The security guard.

You d have to pay them a wage of 700 and let s say each each of you all ten of you have this marginal benefit meaning the benefit of one extra you know security guard or something like that so. The question is how many security guards should you guys hire for your apartment. Building. Now.

If everyone s and making individuals on the road individual decisions on their own here s what s gonna happen you re gonna think hmmm should i hire security guard for seven hundred bucks well let s see the first security guard would give me a benefit of 100 dollars. So that s not worth the thing 100 second one that s even worse so you know at the end of the day. You know you re just not gonna hire any security guards right so let s say all 10 of you will think like that. And you know then no security guards end up getting hired.

Because you re kind of hoping that somebody else might do it. And then you could be a free rider. So usually in this case. It makes sense to have a government or something equivalent so for example here you could decide to have like a board.

A co op board or something for your apartment building. Who will then make decisions and so here s what they would do they would say all right. What s our total benefit right the as in the marginal benefit you know really for for everyone. Because until here s the thing.

Unlike in the past where we would never add the marginal benefits for two different people here. We can because they re sharing. The good. That s the issue here for a private good like pizza.


We d never add your marginal benefit with their marginal benefit to figure out the equilibrium. We would add in fact the quantities. But here they re sharing the good. So you know the same security guard would give all ten people.

A hundred dollar benefit each so technically the total benefit is a thousand dollars. They should be willing to pay a thousand dollars in total for that security guard. Because everyone can ship in their own hundred. So that means that the first security guard is now kind of worth it to hire kids a wage of seven hundred and you can pull your money together.

And you know the thousand dollars is sort of worth it now the second one would be nine hundred and so on you could just multiply all these by ten. So here s the key whatever your marginal benefit is for every individual multiply. It by the number of people and then use that then you solve it the same way you d solve any other problems. So here once you multiply.

It by ten. That s the easiest problem ever where all right if it s 700 how much is sort of a cost of a security guard. How many should we hire first guy sure a second guys sure third a guy sure a fourth guy. It s on the border.

But sure but fifth guy no even if you pull all of our 60 that we re willing to pay for the fifth guy. If you pulled it all together that s only 600 and it s not going to be worth. It cover the wage of seven hundred so the correct answer then the efficient thing to do would be to hire four security guards. Which you can do through government.

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