NotesAtHKU

Classification of goods

We classify goods based on two properties:

Rivalry - Consumption $\uparrow$ $\implies$ Availability $\downarrow$
Excludability - If producers can prevent consumption of good unless paid for

\	Excludable	Non-excludable
Rival	Private goods	Common resources
Non-rival	Club goods	Public goods

Notes:

Private goods can be efficiency provided in competitive markets
It may be more efficient for gov to provide public goods because:
- Brings the greatest benefits to society,
- More difficult to exclude non-payers from using the good

Examples

\	Excludable	Non-excludable
Rival	Food, clothing, cars	Fish in the ocean
Non-rival	Netflix, satellite TV	Air, National defence

Tradegy of the commons

Individuals have no incentive to conserve common resources, leading to overconsumption and depletion of the resource. This is known as the tragedy of the commons.

Derive MSB curve from MB curves

Unlike the market demand curve, the marginal social benefit (MSB) curve is not the horizontal aggregation of individual demand curves. Instead, it is the vertical summation of individual demand curves.

P_{MSB} = P_{d1} + P_{d2} + \cdots

Public Goods

Classification of goods

Tradegy of the commons

Derive MSB curve from MB curves