Goldwasser
AP Microeconomics
Name _______________
Module 76 – Public Goods
Before You Read the Module:
Summary
This module explains how some goods are different from the private goods we have discussed in
previous section. It looks at how to classify public goods, common resources, and artificially scarce
goods, and how government intervention in the markets for these goods can make society better off.
Module Objectives
Review these objectives before you read the module. Place a “y” on the line when you understand
each of the following:
___ Objective 1. A way to classify public goods, and why markets fail to supply public goods
efficiently.
___ Objective 2. What common resources are, and why they are overused.
___ Objective 3. What artificially scarce goods are, and why they are under-consumed.
___ Objective 4. How government intervention in the production and consumption of these types
of goods can make society better off
___ Objective 5. Why finding the right level of government intervention is often difficult.
While You Read the Module
Define these key terms as you read the module.
Excludable
Rival in consumption
Private good
Non-excludable
Non-rival in consumption
Free-rider problem
Public good
Common resource
Overuse
Artificially scarce good
List questions or difficulties from your initial reading of the module.
While You Read the MODULE
Fill-in-the-Blanks
Fill in the table completing the following statements. Terms may be used more than once. If you find
yourself having difficulties) please refer to the reading.
(1)
(4)
(2)
(5)
(3)
(6)
•
Private goods have two important characteristics. They are (1) which means that suppliers of the
good can prevent people who don't pay from consuming it. And they are (2) ______ in
consumption, which means the good cannot be consumed by more than one person at the
same time. A good that has neither of these characteristics is called a (3) ______ good. Clean
water in a river has one, but not both, of these characteristics. It is an example of a (4) ______.
Pay-per-view movies on cable TV are an example of a good that has the other characteristic.
They are known as (5) ______.
•
If rational consumers are not willing to pay for a go04 that benefits everyone because they
decide to let everyone else pay for the good, those consumers are called a (6) ______ .
Module Review
Rival versus Nonrival
In the case of a good that is nonrival in consumption, it's easy to confuse the marginal cost of producing a unit
of the good with the marginal cost of allowing a unit of the good to be consumed. For example, your local
cable company incurs a marginal cost in making a movie available to its subscribers that is equal to the cost of
the resources it uses to produce and broadcast that movie. However, once that movie is being broadcast, no
marginal cost is incurred by letting an additional family watch it. In other words, no costly resources are "used
up" when one more family consumes a movie that has already been produced and is being broadcast.
This complication does not arise, however, when a good is rival in consumption. In that case, the resources
used to produce a unit of the good are "used up" by a person's consumption of if they are no longer available to
satisfy anyone else's consumption. So when a good is rival in consumption, the marginal cost to society of
allowing an individual to consume a unit is equal to the resource cost of producing that unit-that is, equal to
the marginal cost of producing it.
This section looks at four types of goods-private goods, public goods, common resources, and artificially scarce
goods-from the perspective of whether or not the good is rival in consumption and excludable. To understand
this module, it is essential that you have a firm grasp on what it means to be rival in consumption versus
nonrival in consumption and excludable versus nonexcludable. When a good is rival, this means that one
person's consumption of the good effectively prevents another consumer from consuming that same unit of the
good. When a good is nonrival, this means that one person's consumption of the good does not prevent
another individual from consuming the same unit of the good. A good is excludable if a supplier can prevent
someone from consuming the good if they do not pay for it. A good is nonexcludable if a supplier cannot
prevent someone from consuming the good if they do not pay for it.