Goods Chapter11
Public and
Common Resources
Microeconomics
N.GregoryMankiw
PRINCIPLESOF
N.GregoryMankiw
Excludability and Rivalry
Excludability is the property of a good
whereby a person can be prevented from
using it.
Rivalry is the property of a good whereby
one persons use diminishes other peoples
use.
Public Goods and
Common Resources
Public goods are goods that are neither
excludable nor rival in consumption.
Common resources are goods that are rival
in consumption but not excludable.
Two Questions
What is the efficient level of the public
good?
How can we provide the efficient level of a
public good?
Two Questions
$
Social cost = Private cost
11
9
7
6
Social value
4
3
Private valueB
Private valueA
10
25
Public good
Two Questions
Free Rider
A free rider is a person who receives the
benefit of a good but avoids paying for it.
Number of
Cars
Private Cost Cost =
Total Average Cost
Social Cost
1
5
5
5
2
10
5
5
3
15
5
5
4
24
6
9
5
35
7
11
6
54
9
19
Social cost = New private cost +
(Change in private cost x old number
of cars)
Change in Private
Cost x Old
Number of Cars Social Cost
Number of
Cars
New Private
Cost
2
5
0x1=0
5
3
5
0x2=0
5
4
6
1x3=3
9
5
7
1x4=4
11
6
9
2 x 5 = 10
19
$
Social cost
A
Private cost
B
DR
DM
C4
C1
C3
C2
Cars
Chapter 11
Public Goods and Common Resources
Excludability and rivalness
Public goods
Neither rival nor excludable
Example: national defense
Efficient quantity of a public good
Public goods, markets, and the free rider
problem
Chapter 11
Public Goods and Common Resources
Common resources
Rival but not excludable
Example: congested road without tolls
Total cost, private cost, and social cost
Tolls as a solution to road congestion