The fundamental economic problem of scarce resources in relation to
unlimited wants only arises in situations where we are dealing with what are
known as private goods.
These are also known as economic goods since they have a cost in terms of
the resources used and are scarce. A price must therefore be charged when
they are used or consumed
Private goods: consumed by someone and not available to anyone else
Private goods are those bought and consumed by individual consumers or
firms for their own benefit. Most of the goods we consume on a daily basis
are private goods. They have two important characteristics:
Excludability: where it is possible to exclude one from consumption.
This is normally done through charging a price. If the price is not acceptable,
then
that good will not be consumed. Once a private good has been purchased by
one person it cannot be consumed by others.
Rivalry: where consumption by one person reduces availability for others.
In some ways it seems obvious that when we purchase food, clothes or a
textbook then this means that fewer of these goods are available for
purchase by others
free goods.
These have zero opportunity cost since consumption is not limited by
scarcity. They have no prices – as their name indicates – and in theory, no
factors of production are required to produce them
It is not easy to think of examples! In some economies, wild fruit and berries
may be gathered or some animals hunted for their meat. The air we breathe
could also be seen as a free good along with water in a local river
Public goods
two specific characteristics
1 It must be non-excludable. This means that once the good has been
provided for one consumer, it is impossible to stop all other consumers from
benefitting from the good
2 It must also be non-rival. As more and more people consume the good, the
benefit to those already consuming the product must not be diminished.
Take the example of a lighthouse. Once a lighthouse is built to warn one ship
at sea away from a dangerous area of rocks, then by its very nature, this
service will automatically be provided to all ships that sail within a certain
distance of the lighthouse. It is nonexcludable. Equally, the fact that other
ships see the light given by the lighthouse and are warned away from the
dangerous rocks does not reduce the benefit that any one particular ship
receives from that warning. It is non-rival. However, very few goods are
purely public goods in the sense that they match both of the above
characteristics in full. Other typical examples are defence and the police
force in virtually all economies.
Quasi-public good: goods that have some but not all of the characteristics of
public goods
In practice, it is not possible to classify all products as being either ‘public’ or
‘private’. Many products lie somewhere in between these two extremes
A good example might be a sandy seaside beach. Such a beach is available
to all those who wish to use it. It appears non-excludable. However, it is
possible to think of ways of excluding consumers. Privately owned beaches
do this. Equally, the beach is non-rival up to a point. If you are the first
person on a pleasant beach on a warm sunny day, it does very little to
diminish your enjoyment of that beach as a few more people arrive to enjoy
the benefits themselves. However, there may well come a point at which
that is no longer the case. As the beach becomes crowded, space limited and
other people’s conversations and music become ever more audible,
enjoyment may perceptibly reduce. Thus the beach has something of the
characteristic of non-rivalry, but not the full characteristic. It is a quasi-public
good.
Explain, for your economy, whether each of the following may be described
as a private, a public or a quasi-public good: ■ the local police service ■ a
chocolate bar ■ a public park ■ a firework display ■ a stretch of road
street lighting ■ a public cricket pitch
a museum.
Merit good: one that has positive side effects when consumed.
Demerit good: one that has adverse side effects when consumed.
inoculation against a contagious disease might be seen as a merit good.
