Private and Public Goods

Economists define private goods as goods with the following two, slightly subtle characteristics.

Excludability

It is possible to exclude some people from accessing the good. This is typically done by charging a price for the good. Once a private good has been consumed by one person it cannot then be consumed by another person.

Rivalry

Consumption of the good by one person reduces its availability for others. An example could be a theatre ticket, because once all theatre tickets have been sold no further person can see the show.

Goods that are non-excludable and non-rivalrous are called public goods. A true public good is rare, an example being a lighthouse. More common are quasi-public goods, like road systems.

Group Task (take 4 each)

Individual Task

Free-rider problem

One issue we need to be aware of with public goods is the free-rider problem.

Merit and Demerit Goods

We can also identify merit goods (goods that have positive side effects, e.g. education) and demerit goods (goods that have negative side effects, e.g. junk food). Some economics don’t recognise these terms and say that they are both just examples of information failure, as a consumer is unable to make a rational decision because they don’t have access to the information that would allow them to make it.

Class Discussion Task

Group Task – 3 groups each choose one case study, agree on their answer to the question then present the case study and their solution to the other groups.