PowerPoint Presentations for
Principles of Microeconomics
Sixth Canadian Edition
by Mankiw/Kneebone/McKenzie
Adapted for the
Sixth Canadian Edition by
Marc Prud’homme
University of Ottawa
PUBLIC GOODS
AND COMMON
RESOURCES
Chapter 11
Copyright © 2014 by Nelson Education Ltd.
11-2
PUBLIC GOODS AND
COMMON RESOURCES
 In this chapter we examine the problems that
arise for goods without market prices.
 Our analysis will shed light on one of the ten
principles of economics in Chapter 1:
 Governments can sometimes improve
market outcomes.
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THE DIFFERENT KINDS OF GOODS
 In thinking about the various goods in the
economy, it is useful to group them according
to two characteristics:
1. Is the good excludable?
2. Is the good rival in consumption?
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THE DIFFERENT KINDS OF GOODS
 Excludability: the property of a good whereby a
person can be prevented from using it
 Rival in consumption: the property of a good
whereby one person’s use diminishes other
people’s use
 From these two characteristics, goods can be
divided into four categories (next slide):
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THE DIFFERENT KINDS OF GOODS
1. Private goods are both excludable and rival in
consumption.
2. Public goods are neither excludable nor rival in
consumption.
3. Common resources are rival in consumption but
are not excludable.
4. Club goods are excludable but are not rival in
consumption.
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FIGURE 11.1:
Four Types of Goods
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QuickQuiz
Define public goods and common resources,
and give an example of each.
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Active Learning
Categorizing Roads
• A road is which of the four kinds of goods?
• Hint: The answer depends on whether the road
is congested or not, and whether it’s a toll road
or not. Consider the different cases.
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Active Learning
Answers
• Rival in consumption? Only if congested
• Excludable? Only if a toll road
Four possibilities:
Uncongested non-toll road:
public good
Uncongested toll road:
natural monopoly
Congested non-toll road:
common resource
Congested toll road:
private good
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PUBLIC GOODS
Copyright © 2014 by Nelson Education Ltd.
Thinkstock
 To understand how public goods differ
from other goods and why they
present problems for society, let’s
consider an example:
 A fireworks display
 Not excludable
 Not rival in consumption
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The Free-Rider Problem
 When the benefits of a product exceed its
costs, it is efficient to produce it.
 Can we always rely on the private market to
produce it?
 It depends!
 Is it excludable?
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The Free-Rider Problem
 Free rider: a person who receives the benefit
of a good but avoids paying for it
 Because of the “free rider” problem, the
market fails to produce an efficient
outcome.
 The market fails because of an externality.
 The solution is simple, however!
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Some Important Public Goods
1. National defence
2. Basic research
 General knowledge is a public good.
 Specific technological knowledge is not.
3. Fighting poverty
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The Difficult Job of Cost–Benefit Analysis
 Knowing that the government has a role to
play in the provision of public goods is a first
step.
 The government must now decide what
public goods to provide and in what
quantities.
 Cost–benefit analysis will help answer these
questions.
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The Difficult Job of Cost–Benefit Analysis
Cost–benefit analysis: a study that
compares the costs and benefits to
society of providing a public good
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QuickQuiz
What is the free-rider problem?
Why does the free-rider problem induce the
government to provide public goods?
How should the government decide whether to
provide a public good?
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COMMON RESOURCES
 Common resources, like public goods, are not
excludable.
 Common resources are, however, rival in
consumption.
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11-18
The Tragedy of the Commons
The Tragedy of the Commons: a parable
that illustrates why common resources
get used more than is desirable from the
standpoint of society as a whole
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11-19
The Tragedy of the Commons
 When one person uses a common resource, that
person diminishes other people’s enjoyment of it.
 Because of this negative externality, common
resources tend to be used excessively.
 The government can solve the problem by:
 reducing use of the common resource through
regulation or taxes
 turning the common resource into a private good
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Some Important Common Resources
1. Clean air and water
2. Congested roads
Thinkstock
3. Fish, whales, and other
wildlife
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QuickQuiz
Why do governments try to limit the use of
common resources?
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Classroom Activity
Private Goods/Public Goods: A
Demonstration
I need a volunteer please.
1. Are you enjoying the candy and the art?
2. Are the rest of you getting any enjoyment from
the candy?
3. Are you getting any enjoyment from the art?
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THE END
Chapter 11
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