Question

Goods and services can be assigned to one of three catagories:private,semi-private,or public.Explain the differences,and provide examples of each category.

Answer 1

Goods and services can be assgined to one of three categories : Private, semi-private or public.

Goods and services are based on excludability and rivalorousness in consumption.There are total four categories of good: Private good, common good, club good and public good.

Private Good: These are the goods which are excludable and rivalorous in nature.It is excludable in that is it is possible to exercise private property rights over it, preventing those who haven't paid from using the good or taking its benefits. It is rivalorous in that its consumption by one person reduces the consumption for another person. A private good is a scarce economic resource which causes competition for it.Examples of private goods are food, clothing etc. E.g : icecream cone , it is both excludable and rivalorous in consumption.

Common Goods: These are called semi-private goods. These are the goods that are non-excludable and rivalorous. These types of goods because of its traits are genrally over-consumed, and leading to a phenomenon of 'tragedy of commons'.Example of common good are fish stock in water. Because no one is excluded from fishing , but as peple withdraw fish without any limits being imposed, the fish available for later fishermen are depleted.

Club Goods: These are also called semi-private goods. These are the goods that are excludable and non-rivalorous. These type of goods often require a 'membership' payment in order to enjoy the benefits of the goods. Non-payers for the good can be prevented from access to the goods. Example of club good is Cable television. It requires a monthly fee but is non-rival after the payment (consumption can't reduced after being consumed by other person).

Public Goods: Public goods are both non-excludable and non-rivalorous in nature. Individuals cannot be effectively excluded from using them and consumption by one individual doesn't reduce the good's availablity to others. Public goods can be pure or impure. Pure public goods are thoe that are perfectly non-rivalrous in consumption and non-excludable. Impure public goods are those which satisfy the conditions to some extent but not fully. Example of public goods are street lights, air, public parks etc. These kind of goods rise to the 'free rider problem'. A free rider is a person who receives benefit of a good without paying for it.