Principles of Economics - Microeconomics

Public goods

Public good - non excludable, non rival good.

Non-excludable - non paying consumers still benefit. Non-rival - One person using it, another person still can.

  Excludable Non-Excluable
Rival Private goods (Clothing) Common resources (Tuna)
Non-rival Club goods (Cable TV) Public goods (National defense)

Tragedy of commons

The tendency of any resource that is unowned and hence non excludable to be overused and under maintained.

Whales in the ocean are common resource. This led to over whaling and hence near extinction of whales.

Solutions to tragedy of commons

  • Command and control
    • Regulations. Works well within a smaller geographies.
    • Example - regulations on tree cutting. Policing of jungles to stop hunting of endangered species. Hunting and fishing licenses.
  • Cultural norms
    • Norms can prevent the tragedy of the commons by using social discipline to erring parties.
  • Creating property rights
    • Example - lobster trappers divide up possible areas amongst themselves and have exclusive right to trap lobsters on their own area.
    • This helps reduce supply of lobster trappers, as well as incentivises existing ones to not overuse their resources.