Chapter 11/Public Goods and Common Resources ❖ 203
IV. Conclusion: The Importance of Property Rights
the lack of well-defined property rights.
B. This absence of property rights can lead to a market failure, which implies that in these
being.
SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes
1. Public goods are goods that are neither excludable nor rival in consumption. Examples
the environment, and congested nontoll roads.
2. The free-rider problem occurs when people receive the benefits of a good but avoid paying
for it. The free-rider problem induces the government to provide public goods because the
private market will not produce an efficient quantity on its own. The government uses tax
revenue to provide the good, everyone pays for it, and everyone enjoys its benefits. The
government should decide whether to provide a public good by comparing the good’s costs
to its benefits. If the benefits exceed the costs, society is better off.
Activity 2—Article on the Role of Government
Type: Take-home assignment
Topics: The role of government, market failure
Class limitations: Works in any size class
Purpose
This assignment gives students an opportunity to identify real-world market failures and
consider how the government can address these issues. Categorizing a real problem will help
students clearly distinguish the various types of market failure.
Instructions
This assignment is difficult for many students, particularly if they are unclear on the concept
of market failure. Not every example of government action will be appropriate for this
assignment. Students may find it easier to make a list of possible areas of market failures
before looking for an article.
Ask the students to do the following:
1. Find an article in a recent newspaper or magazine that illustrates market failure.
2. Identify the type of market failure. Is it a problem of negative externalities, positive
externalities, public goods, or common resources?
3. Explain how government action can improve economic efficiency.
4. Graph the market failure and explain the problem. Then show how the government
action will change the situation.
204 ❖ Chapter 11/Public Goods and Common Resources
3. Governments try to limit the use of common resources because one person’s use of the
resource diminishes others’ use of it. This means that use of these goods results in a
Questions for Review
1. An excludable good is one that people can be prevented from using. A good that is rival in
it, no one else can eat it.
2. A public good is a good that is neither excludable nor rival in consumption. An example is
supply the good, because no one would pay for it because they cannot be excluded from
3. Cost–benefit analysis is a study that compares the costs and benefits to society of providing
because respondents have little incentive to tell the truth.
4. A common resource is a good that is rival in consumption but not excludable. An example is
people will use the good too much, because they do not account for the costs they impose
on others when they use the good.
Quick Check Multiple Choice
1. a
2. b
3. b
4. d
5. b
6. c
Problems and Applications
1. a. (1) Police protection is a club good because it is excludable (the police may ignore some
neighborhoods) and not rival in consumption. You could make an argument that police
protection is rival in consumption, if the police are too busy to respond to all crimes, so
that one person’s use of the police reduces the amount available for others. In that case,
police protection is a private good.
(2) Snow plowing is most likely a common resource. Once a street is plowed, it is not
excludable. But it is rival in consumption, especially right after a big snowfall, because
Chapter 11/Public Goods and Common Resources ❖ 205
plowing one street means not plowing another street.
(3) Education is a private good (with a positive externality). It is excludable, because
someone who does not pay can be prevented from taking classes. It is rival in
consumption, because the presence of an additional student in a class reduces the
benefits to others.
(4) Rural roads are public goods. They are not excludable and they are not rival in
consumption because they are uncongested.
(5) City streets are common resources when congested. They are not excludable,
rival in consumption.
b. The government may provide goods that are not public goods, such as education,
because of the externalities associated with them.
than the efficient quantity.
b. The externalities associated with common resources are generally negative. Because
common resources are rival in consumption but not excludable, the use of the common
resources by one person reduces the amount available for others. Because common
3. a. Charlie is a free rider.
b. The government could solve the problem by sponsoring the show and paying for it with
tax revenue collected from everyone.
4. a. If only a few people use the free wireless internet, it would not be excludable and not
rival in consumption. Thus, it would be a public good.
b. Once a large number of people begin using the free internet service, it is a common
c. Overuse is likely to occur. One possible way to correct for this would be to make the
good excludable by charging a fee for its use.
5. a. Within the dorm room, the showing of a movie is a public good. None of the roommates
206 ❖ Chapter 11/Public Goods and Common Resources
affect the ability of another roommate to view the movie, the good is also not rival in
consumption.
be less than the cost ($8).
c. The total cost would be $8 3 = $24. If the cost were divided evenly among the
roommates, each would pay $6. Judd values three movies at $18 so his surplus would be
$12. Joel values three movies at $12 so his surplus would be $6. Gus values three
d. The costs could be divided up by the roommates based on the benefits they receive.
Because Judd values the movies the most, he would pay the greatest share. The problem
is that this gives each roommate an incentive to understate the value of the movies to
him.
f. The optimal provision of public goods will occur if individuals do not have an incentive to
hide their valuation of a good. This means that each individual’s cost cannot be related to
his valuation.
b. The United States has tried to give private firms incentives to provide basic research by
subsidizing it through organizations like the National Institute of Health and the National
Science Foundation.
but knowledge tends to diffuse rapidly.
7. When a person litters along a highway, others bear the negative externality, so the private
8. a. The productivity of each fisherman declines as
N
rises because the fish in the town lakes
are a common resource. The fish are not excludable but rival in consumption. The fish on
the farm are private goods because they are excludable and rival in consumption.
b. Four million residents would fish in the lakes and one million would fish on the farm.
Each fisherman would catch 2 fish, so 10 million fish would be produced.
c. The table below shows how total fish production varies with
N
:
Chapter 11/Public Goods and Common Resources ❖ 207
# Fishermen at
lakes (in
millions)
Fish per
fisherman at
lakes
Total fish at
lakes (in
millions)
# Fishermen at
farm (in
millions)
Total fish at
farm (in
millions)
Total fish
caught (in
millions)
5
1
5
0
0
5
4
2
8
1
2
10
3
3
9
2
4
13
2
4
8
3
6
14
1
5
5
4
8
13
0
0
0
5
10
10
d. The tax would have to be slightly larger than 1 (such as 1.01). Then only 2 fishermen
would want to fish in the lake.
e. Everyone is better off because there are more fish for everyone and the tax has been
provided back to the residents.
9. When the system is congested, each additional rider imposes costs on other riders. For
example, when all seats are taken, some people must stand. Or if there isn’t any room to
rush hour internalizes this externality.
10. Recognizing that there are opportunity costs that are relevant for cost–benefit analysis is the
be considered in cost–benefit analysis.