Public Goods and Common Resources

00:01 Hello. Welcome back to your online presentation on Microeconomics.

00:04 My name is James DeNicco.

00:06 This presentation is gonna be about Public Goods and Common Resources.

00:09 So, what are we gonna learn? We're gonna learn about the different properties of goods.

00:13 We're gonna look at the different types of goods out there.

00:16 And we're gonna look at the different issues related with different types of goods and how we can address those issues.

00:22 So, first, for some properties of goods.

00:25 So, the two properties we're going to look at are excludability and rival in consumption.

00:30 So, a good is excludable if you could prevent a person from using it.

00:35 A good is rival in consumption if you enjoying it affects another person's enjoyment or if you're using or consuming a good, does it diminish other people's use? So, here I have security for the excludability.

00:50 Can you keep people out? Can you keep people from using it? And here, rival in consumption.

00:55 So, the one little kid's eating the cereal and the other kept eating the cereal of one is.

01:00 So, he's reaching across and he takes it.

01:01 So, if he's enjoying that cereal, nobody else can, right? He's eating it. It's his. So, his use takes away from somebody else's use.

01:08 So, what are different types of goods? Well, we have private goods.

01:13 Those are goods that are both excludable and rival in consumption.

01:17 So, you can think about a steak dinner that you go by.

01:21 So, if you go buy yourself a nice steak, you keep other people from eating that steak, right? And you can say, "No, get away".

01:26 You already have the steak knife in your hand.

01:28 So, people probably aren't gonna wanna mess with your steak, right? You're cutting up and eating it. It's also rival in consumption.

01:33 If you're chewing on a piece of steak that diminishes somebody else's enjoyment of that piece of steak, it diminishes somebody else's use of that piece of steak. That's a private good.

01:43 We have public goods. Those goods are neither excludable nor rival in consumption.

01:49 You can think about National Defense, National Defense as a public good.

01:54 So, you can't exclude anybody from enjoying that national defense.

01:58 If I live in a country, I get the benefits of the army, the navy, the national defense.

02:04 Also, your enjoyment of that national defense, your enjoyment of that security doesn't affect my enjoyment of that security.

02:12 Your use of that security doesn't diminish my use of that security. We have common resources.

02:18 Those are goods that are rival in consumption but are not excludable.

02:23 So, you can think about the fish in the sea.

02:25 You can't prevent people from going out there and fishing.

02:28 You can't exclude them, but it's rival in consumption.

02:31 If I'm catching a fish, you can't be catching that fish.

02:34 My use of that fish diminishes your use of that fish. And they have club goods.

02:39 Those are goods that are excludable, but they're not rival in consumption.

02:44 You can prevent people from using the good but your enjoyment doesn't affect somebody else's enjoyment.

02:50 So, here I have a picture of a country club.

02:53 So, a golf course, a private golf course that's not busy. So, you could keep people from using it.

03:00 But if it's not busy, you being on the seventh hole doesn't affect me being on the ninth hole.

03:04 Now, I put this handy dandy chart here together to help you keep it all straight.

03:08 Alright, so on the top, we have rival in consumption, yes or no.

03:12 And on the left, we have excludable, yes or no. So, we already said private goods.

03:16 They're both rival in consumption and excludable.

03:19 We know our public goods in the bottom right here, our national defense, that's not excludable and it's not rival in consumption.

03:26 We have our club goods, they're excludable, but they're not rival in consumption.

03:30 We have our common resources, the rival in consumption, but they're not excludable.

03:35 So, we have some issues that arise with certain types of goods.

03:39 So, for public goods, we can have what's called the free rider problem.

03:42 I already got this guy here, he's taking advantage of his dog.

03:45 He's standing on his skateboard, let the dog pull him around.

03:48 He's a free rider. It's a person who receives the benefit of a good but avoids paying for it.

03:53 That's a mooch. Leaves a role for government to come in and take care of that free rider.

03:58 Make sure that he's not enjoying things on the backs of others.

04:02 So, there are some important public goods one being national defense.

04:05 All right, nobody can be excluded from it, right? And one person's use doesn't diminish another.

04:10 Most people consider national defense pretty worthwhile. Another is basic research.

04:15 All right, basic research that results in public knowledge.

04:18 We're all better off, right? We all have a higher level of knowledge. There's little profit incentive for it.

04:24 That's not like private research where you can get patents in R and D's but basic knowledge the government can come in and they can fill that role.

04:31 So, there's a cost benefit analysis that has to be done, right? And that's the study that compares the cost and benefits of a society to providing a public good.

04:40 So, this is a necessary process whenever the government wants to provide a public good.

04:45 Is the cost greater than the benefit or is the benefit greater than the cost? So, now, one important example of the problem with common resources is what we call the Tragedy of the Commons. So, this is what can happen with common resources.

05:01 The Tragedy of the Commons talks about a field you have a bunch of ranchers, whether it's cattle or sheep, and they all share this public grazing land.

05:10 So, all of them have an incentive to go out there and overuse that field.

05:14 The reason being is they reap all the benefit and their cows or their sheep or whatever is grazing on that land, getting bigger and fatter and better so they can make more profit.

05:24 They share the cost, the cost being the diminishment of that land, the grass being eaten away.

05:31 So, you have all the different cattle and all the different ranchers out there.

05:35 They're all the same way. They all reap the benefit from over grazing and they all share the cost.

05:40 So, they all over graze to the point where the fields or the grazing lands are destroyed.

05:46 They're eaten down to nothing, even the seeds are eaten.

05:49 So, it turns into a desert. Nobody can use it, all right? You can apply that to the fish in the sea as well. And plenty of other examples.

05:56 That leaves a role for government to come in and regulate.

05:59 That actually helps everybody in the long run.

06:01 Even though there's some short term cost to the rancher, you can't use that.

06:05 He can't overgraze like you would like to and reap that profit or benefit.

06:10 In the long run, the lands will be there for him to use.

06:14 So, that's our comedy, that's our -- I'm sorry, Tragedy of the Commons.

06:18 So, that's an issue that can come up sometimes with common resources.

06:23 So, we also have some important common resources, all right? Our congested toll roads, our congested roads, you can use tolls to try to alleviate some of that congestion.

06:33 Your fish, your whales, your other wildlife, that's just like the Tragedy of the Commons I talked about.

06:38 Get a regulation, prevent overfishing and our clean air and water, okay? Obviously, we want clean air and water.

06:45 So, you don't want people to overuse that to pollute it.

06:49 So, that leaves a role for government as well.

06:51 These are some of our important common resources where there's a role for government to come in and regulate.

06:56 All right. So, what have we learned? We understand what it means for goods to be excludable or rival in consumption.

07:02 We know about the different types of goods, either our private goods or club goods or common resources.

07:07 We know about all those different types of goods.

07:10 We know the issues that come along with those goods, all right? So, this was your presentation on Public Goods and Common Resources. Thank you.