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ECON 201
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Microeconomics
Textbook
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Public Goods and

Common Resources
01 Public Goods and Common Resources
Different Types of Goods

● Excludable - When you can stop certain people from using a product for free.

Example: Movie theatres - you can exclude people from entering if they do not pay.

● Rivalrous - If one person uses a product, that prevents someone else from using it

Example: Airplane seats - if you bought a specific seat then someone else cannot use that
same seat.

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Free Rider Problem

● The free rider problem is when some people get to use a product for free.

● This is a market failure because it's not fair for people that paid for the product. To fix this,
the government provides these services and products. They are called public goods.

Example: National defense

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Tragedy of the Commons

● Tragedy of the Commons applies to common goods. It is when a good or resource is likely
to be overused because it is non-excludable.

● It basically means more people will use the resource than what is desirable for society and
one person's use of the resource reduces the availability of it for others (rivalrous).

Example: If many farmers are letting all their cows feed off grass on the same land, the grass
might run out.

● Solution for Tragedy of the Commons - The government can put a fine if people use that
resource too much or they can issue permits so that only a certain number of people can use
the resource.

Example: if certain sharks are going extinct, the government can put a fine on people that are
caught fishing that type of shark.

Example Problem

Example: Different Types of Goods

Which of the following best represents a tragedy of the commons?

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A) a shopping mall with only window shoppers inside

B) a huge traffic jam on the highway

C) a forest fire caused by a cigarette butt

D) a water park that has closed due to lack of demand

Example Problem

Example: Free Rider Problem

Because of the free-rider problem:

A) the market demand for a public good is overstated

B) the market demand for a public good is understated

C) government has increasingly yielded to the private sector in producing public goods

D) government has disallowed public goods from being provided for free

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Practice Questions
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