Make a list of private and public goods and try to explain how private goods can be protected with the protection of public goods. In 100 to 150 word
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Charging home owners’ association dues based on the size of the property is common practice in many places across the world. Is that economically efficient and is it equitable? The short answer to the question raised by reader Mr Baransam1 is yes. The longer answer needs to start with distinguishing different categories of goods that are produced, traded and consumed.
Private Goods
The most common category are called “private goods.” These are formally defined by being “rival” and “excludable.” The rivalrous characteristic arises from the fact that one’s consumption of the good precludes any other person from consuming it. If you eat an apple, that apple is not available for consumption by others. Excludability means that one can be prevented from consuming the good. You can lock up the apple and exclude others from consuming it.
Apples are private goods. And so are shoes, and ships, and sealing wax. And an untold millions of other things that are produced in the world.
Public Goods
At the other extreme away from private goods are “public goods.” Pure public goods feature non-rivalry and non-excludability. Non-rivalry means one person’s consumption does not reduce the amount available for consumption by others. Your listening to an over-the-air radio broadcast does not preclude other people to listening to the broadcast. Also, you cannot prevent — exclude — others from listening to a radio broadcast.
Just by the way, let’s remember that public goods are not goods that are good for the public or goods that affect “the public good.” Nor are public goods that are produced by the public sector. The production of public goods (and the related “public bads”) can be done by the private sector, and conversely the public sector can (and does) produce private goods.
Non-rivalrous Excludable Goods
Moving on. You could have non-rivalrous goods that are excludable. The movie playing at a movie theater is a non-rivalrous good (many persons can watch the movie simultaneously) but is excludable (only ticket holders get to watch.) And you could have goods that are rivalrous but are non-excludable. An open forest without guards and fences is an example. The wood that you gather in the forest reduces the amount available to others, but no one is excluded from gathering wood either. This forest is an example of what is called a “common pool resource” or “common property resource.”
Common Property Resources
Common property resources usually have congestion or crowding problems. If too many people use the resource, it negatively impacts everyone’s ability to use it, and it degrades the resource itself. Toll-free streets and highways are examples of common property resources. That problem is well-understood and it leads to what is known as “the tragedy of the commons.” One solution to CPR problem is to charge for use.
Lighthouses
Pure public goods are rare. An illuminating example of a pure pubic good is the services of a lighthouse.
I took the picture of the lighthouse that appears at the start of this piece at Point Reyes, California, a favorite vista point to take out of town visitors to.
Any and all ships in the vicinity can benefit from it, and no ship can be prevented from using the lighthouse beacon to navigate. A more contemporary example would be the global positioning system (GPS.) Anyone with a GPS device can use the services of dozens of satellites for free.
National defense is also trotted out as an exemplar of a pure public good. Any amount of national defense that gets produced is available to everyone to that same amount. Another way of expressing it is that the amount available is “non-partitionable” in the sense that national defense cannot be handed out in little chunks to various people.
Private Goods
The most common category are called “private goods.” These are formally defined by being “rival” and “excludable.” The rivalrous characteristic arises from the fact that one’s consumption of the good precludes any other person from consuming it. If you eat an apple, that apple is not available for consumption by others. Excludability means that one can be prevented from consuming the good. You can lock up the apple and exclude others from consuming it.
Apples are private goods. And so are shoes, and ships, and sealing wax. And an untold millions of other things that are produced in the world.
Public Goods
At the other extreme away from private goods are “public goods.” Pure public goods feature non-rivalry and non-excludability. Non-rivalry means one person’s consumption does not reduce the amount available for consumption by others. Your listening to an over-the-air radio broadcast does not preclude other people to listening to the broadcast. Also, you cannot prevent — exclude — others from listening to a radio broadcast.
Just by the way, let’s remember that public goods are not goods that are good for the public or goods that affect “the public good.” Nor are public goods that are produced by the public sector. The production of public goods (and the related “public bads”) can be done by the private sector, and conversely the public sector can (and does) produce private goods.
Non-rivalrous Excludable Goods
Moving on. You could have non-rivalrous goods that are excludable. The movie playing at a movie theater is a non-rivalrous good (many persons can watch the movie simultaneously) but is excludable (only ticket holders get to watch.) And you could have goods that are rivalrous but are non-excludable. An open forest without guards and fences is an example. The wood that you gather in the forest reduces the amount available to others, but no one is excluded from gathering wood either. This forest is an example of what is called a “common pool resource” or “common property resource.”
Common Property Resources
Common property resources usually have congestion or crowding problems. If too many people use the resource, it negatively impacts everyone’s ability to use it, and it degrades the resource itself. Toll-free streets and highways are examples of common property resources. That problem is well-understood and it leads to what is known as “the tragedy of the commons.” One solution to CPR problem is to charge for use.
Lighthouses
Pure public goods are rare. An illuminating example of a pure pubic good is the services of a lighthouse.
I took the picture of the lighthouse that appears at the start of this piece at Point Reyes, California, a favorite vista point to take out of town visitors to.
Any and all ships in the vicinity can benefit from it, and no ship can be prevented from using the lighthouse beacon to navigate. A more contemporary example would be the global positioning system (GPS.) Anyone with a GPS device can use the services of dozens of satellites for free.
National defense is also trotted out as an exemplar of a pure public good. Any amount of national defense that gets produced is available to everyone to that same amount. Another way of expressing it is that the amount available is “non-partitionable” in the sense that national defense cannot be handed out in little chunks to various people.
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