Question

Goods differ on the basis of whether their consumption is rival and excludable.

Explain the terms "rivalry" and "excludability" as they are used to define goods.

List the four categories of goods, and define these categories in terms of rivalry and excludability.

Answer 1

• The terms rivalry and excludability are used to categorise different goods and services into their types.
• Rivalry is a property in which any consumption of a good or service by one person can reduce its availability for others.
• For example, food is rivalrous as it can be consumed only by one person, and it's availability for others decreases when he consumes it.
• Excludability refers to a property in which it is possible to prevent certain consumer's from consuming certain goods and services until and unless they have paid for it.
• For example, food is excludable as only those people who have paid for it can consume it.
• The four categories of goods are :-

1. Public goods :- public goods are those goods that are accessible by anyone irrespective of who have paid for it. These goods are both non excludable and non rivalrous as no one can be prevented from using it just because they have not paid for it and it's consumption by one person will not decrease it's availability for others. For example :- fresh air.
2. Private goods :- private goods are those goods that are privately owned and are both excludable and rival as a person needs to pay for it to access the good or the service and it's consumption by one person reduces its availability for others. For example :- Food.
3. Common goods :- common goods are defined to be both rivalrous and non-excludable. They are rivalorus as it's consumption by one person can prevent others from consuming it but its consumption cannot be prevented for those who have not paid for the good. For example :- Coal.
4. Club goods :- Club goods are defined as those goods that are non rivalorus but excludable. They are non rivalorus as one person's consumption cannot prevent others from consuming it and they are excludable as only those who pay for the good can access it. For example :- movie theater.