chapter 10

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club goods

are excludable but not rival in consumption. For instance, consider fire protection in a small town. It is easy to exclude someone from using this good: The fire department can just let his house burn down. Yet fire protection is not rival in consumption: Once a town has paid for the fire department, the additional cost of protecting one more house is small. (We discuss club goods again

public good

are neither excludable nor rival in consumption. That is, people cannot be prevented from using a public good, and one person's use of a public good does not reduce another person's ability to use it. For example, a tornado siren in a small town is a public good. Once the siren sounds, it is impossible to prevent any single person from hearing it (so it is not excludable).

Common resources

are rival in consumption but not excludable. For example, fish in the ocean are rival in consumption: When one person catches fish, there are fewer fish for the next person to catch. Yet these fish are not an excludable good because, given the vast size of an ocean, it is difficult to stop fishermen from taking fish out of it.

positive externality?

helps the consumer

negative externality?

puts a burden on the buyer

private goods

re both excludable and rival in consumption. Consider an ice-cream cone, for example. An ice-cream cone is excludable because it is possible to prevent someone from eating an ice-cream cone—you just don't give it to him. An ice-cream cone is rival in consumption because if one person eats an ice-cream cone, another person cannot eat the same cone. Most goods in the economy are private goods like ice-cream cones: You don't get one unless you pay for it, and once you have it, you are the only person who benefits.

excludability?

the property of a good whereby a person can be prevented from using it

rivalry in consumption

the property of a good whereby one person's use diminishes other people's use

externality

the uncompensated impact of ones persons action on the well-being of another bystander


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