Four Types of Goods and Two Characteristics - Online Tutor, Practice Problems & Exam Prep

Two Characteristics:Rivalry in Consumption and Excludability

Hey guys, have you ever considered the difference between a cheeseburger and the US court system? Well, in this video, we're going to finally find the answer and distinguish between the two. Let's do that. Alright, so what we're going to do in this unit is we're going to start splitting up goods into different categories, okay? And we're going to do this split based on two traits. We're going to have the trait of rivalry in consumption and the trait of excludability, okay? So based on these two traits, we're going to break the goods up into four different categories. So let's go ahead and start with the first trait, rivalry in consumption. Rival in consumption, right? That word rival, right? It's like an enemy, right? Someone else is your enemy in the consumption of this product, right? So the idea here is that only one person, right, there can only be one. It's kind of like the Highlander here. Only one person can consume each unit of the good, right? So when something's rival in consumption, one person can consume the good. So what's an example of a rival good? Well, in this case, we're going to have that cheeseburger, right? A cheeseburger is a rival good, right? Because the cheeseburger, if I eat a cheeseburger, you can't eat that same cheeseburger, right? I'm the only one that gets to eat the cheeseburger, right? There's one person that can consume each unit of the good. So you'd imagine the opposite of a rival good would be a non-rival good, okay? So this is going to be the opposite of a rival good. So can you think of a non-rival good? A non-rival good would be something that when I consume it, it doesn't make it that someone else can't consume that same unit, right? So this is a little trickier to think about, but a good example of a non-rival good is watching Netflix. So if you think about watching a movie on Netflix, right? If I were to go on Netflix and I watch my favorite movie, Reservoir Dogs, I'd say that is probably my favorite movie. If I watch that on Netflix, it it's not like me watching it made it so you can't watch it. Right? You can go ahead and you can watch the same movie on Netflix and it doesn't affect my consumption, it doesn't affect your consumption, right? It's non-rival, we can both consume that same movie without detrimenting each other. Cool? So it's a non-rival good when we can all consume the same unit. So let's talk about the other trait, excludability. So when you think of exclude, right? We're going to exclude someone from something, it's when a person can be prevented from consuming it, right? The person can't use the good for some reason and that reason is pretty much always that they did not pay for the good, okay? So we can exclude people from using the good based on their payment, right? So if they didn't pay, they're going to be excluded. So what's an example of an excludable good? Well, a good example to follow with that Netflix is still the idea of Netflix being excludable here. So Netflix can be an excludable good, right? Because Netflix charges you to watch the movies. If I wanted to watch Reservoir Dogs on Netflix, they would ask me for my sign-up, my password, right? They would need to make sure that I'm paying them money before they let me see the movie. So Netflix can exclude you from their goods, from the movies based on whether you paid or not, right? And I know a lot of you are sharing Netflix accounts. Bad on you, right? Pay Netflix their money. Just kidding. I do the same thing. Example of a so if you guys excludable, what do you think the opposite here is going to be? Wow. I can't believe you got that. Non-excludable, right. So this is going to be the opposite of an excludable good is a non-excludable good. Alright, can any of you think of an example of a non-excludable good, right? This is a good that you can't keep people from using it, right? You can't keep them from using it even if they paid or did not pay, they're going to be able to use it anyway. It's pretty tough, right? It's kind of tough to think of something that's non-excludable, right? Oh, wow, hey, that's a great example. I don't know who said that, but National Defense, I don't know where you came up with that, but that is actually a great example of a non-excludable good, right? So if you think about it, if the government wants to protect you know your neighbors right, everyone around you from some kind of missile coming at you, they can't protect your neighbors but not you, right? They're going to have to protect everybody, right? You can't exclude somebody from being defended from national defense. If you're inside the nation, you're going to be defended. They can't say oh we're going to protect everybody except you, you're not protected from this missile, right? They can't do it. So national defense, that's a great example of a non-excludable good. Cool, so we've seen the two traits here right? Rivalry in consumption and excludability. So we've got the traits and their opposites, alright? So now what we're going to do is we're going to take those traits and we're going to define four types of goods based on the different combinations of these traits. Alright, let's go ahead and do that in the next video.

The Four Types of Goods:Private Goods, Club Goods, Common Resources, and Public Goods

All right, so let's go ahead and define those 4 types of goods. On this table, you'll see that I've split it up. We've got along the top we've got excludable and non-excludable and along the left-hand side rival and non-rival, right? So based on these combinations, we're going to get different types of goods. Let's start here in this top left corner, excludable and rival. When a good is excludable and rival, right, that means only one person can consume it, and you could be made to pay for it, right? You can't consume it unless you paid. So these are our private goods, right? Excludable and rival. And here a private good, right, a cheeseburger, right? If there's a cheeseburger, right? If I eat the cheeseburger, you can't eat it, right? That's the rivalry and generally, you're going to have to pay for the cheeseburger, right? You can't eat the cheeseburger unless you paid for it first. So a cheeseburger is a great example of a private good, right? And this kind of extends to all food and drink in general, right? Any kind of food or drink, if I eat it, you can't also eat it, right? So they're going to be rival and they're going to be excludable, right? Because you can charge for this food. Cool, so that's a very common example but we have, you know, all sorts of random goods can be private goods, all sorts of household goods. I'm just gonna throw one out, a pair of jeans right? A pair of jeans, if I'm wearing the jeans, you can't wear the jeans too, right? They're rival. Only one person can wear the jeans and they're excludable because you have to pay for the jeans, right? So private good, jeans there and how about a house? Even the house, the household goods, and the house itself is a private good, right? If I live in the house with my family, I can exclude you because you didn't pay to live there, right? You can't come in my house unless you had paid to live there, right? So I can exclude people that I don't want in my house and it's rival, right? If my family is living there, your family can't live there too, we're already living in the house, there's not enough space for everybody, so it's rival, right? There's only so much space in there. Cool, so those are our private goods right? And there are some examples there.

Let's go on down to this next box below it, club goods. Okay, so these are goods that are excludable, right? So this is still a case where you can force people to pay before they can use the good, but they're non-rival. In this case, right, if I use a good it doesn't keep you from using that same unit. Now before we get into these examples of club goods, I want to make a note that club goods is like some reason like nobody could agree on like the name for these things, so there are all sorts of different names for club goods. Quasi public goods, near-public goods, artificially scarce goods, natural monopoly goods, and non-rep. Look at all these crazy names, but club goods seem to be the most commonly used universally. Okay, so we're going to go with ClubGoods in our examples and I do like this name a lot too, this artificially scarce goods. Alright, because the idea here is that they're artificially scarce because there's this payment involved. Alright, so let's look at some examples and you'll see kind of how this artificially scarce idea makes sense. So let's think of club goods. The first one that's a good example is one we've already been talking about. The idea of Netflix, right? To get Netflix, you have to pay, right? You have to have a subscription, so you're paying monthly, they're excluding people who do not pay for Netflix right, but it's non-rival, right? Me watching a movie on Netflix doesn't stop you from watching the same movie on Netflix, right? So think about that, it's artificially scarce, right? They're making it so it's like this movie's hard to get to even though there's no reason that everybody couldn't watch it. There's no extra cost to them for me watching it, you watching it, everyone else watching it, right? There's no extra cost at that point. So it's artificially scarce because of this kind of club mentality, right? Where there's you have to join the club, you have to join Netflix to get access. Cool. So Netflix, cable TV, all sorts of things like that, right? Another good one is a toll road. So if you think about a toll road, is a great example of a club good, right? Because it can exclude people, right? Because if you didn't pay to go on the toll road, you can't use the toll road, but it's non-rival, right? Me driving down the toll road doesn't affect you driving down the toll road. Well assuming there's no traffic, right? So I'm going to go ahead, I'm just going to put in here uncongested like there's no traffic right? Because I could see one of you being a real stickler and saying, what if the toll road is really congested and there's a lot of traffic on the toll road? Then me using the toll road does affect you right? Because if the toll road is full of traffic and I try and get on the toll road, now we're fighting for that same space, so it becomes rival in a sense. So to not deal with all that, let's not even think about that. Let's say that the toll road is uncongested, right? Me driving down the toll road doesn't affect you, so in this case, it's non-rival, right? We're not going to fight for the road space and it's excludable because we had to pay to use it. So we joined the club. We joined the Toll Road Club. Cool. How about the last one here? Some of you might be familiar with this one. How about frat parties? Frat parties are a club good as well, right? If you go to a frat party, you'll see that people are generally excluded, right? If you didn't join the frat, you're probably not going to the party if you're a dude. And they're non-rival, right, everyone who's at the party doesn't get affected by other people at the party, right. By me going to the party, it doesn't affect you having fun at the party also, right? So they're non-rival good, this party it doesn't affect you know there's one quantity of party and we're both able to go and use that same party. Cool. So you got to join the club right to get access to any of these goods Netflix, toll roads, frat parties, these are all club goods. Cool? Well let's go ahead and yeah let's go ahead and go to the other side here to common resources. So let's go up to this top box where we've got non-excludable and rival, right? So think about it, here they're non-excludable so you can't keep someone from using it even if they didn't pay, right? But they're rival, so me using it makes it so you can't use the same one. A great example here is fish in the ocean, right? There's a bunch of fish in the ocean, but if I go out and catch a fish, right, no one's going to stop me from catching a fish if I go out into the ocean with my boat and catch the fish. No one's going to stop me. But if I catch that fish, you can't catch the same fish, right? That fish is rival, right? So we've got this rival situation where I caught a fish, you no longer can catch it and it's non-excludable. No one can stop me from going out there and catching the fish. Cool, so fish in the ocean, a great example. Another one would be our clean air, right. So the clean air that we have is also a rival non-excludable good, right? So the idea is it's non-excludable, no one can stop you from using the air, right? For good or for bad, right? There's also the chance that someone could pollute the air right, a factory can go ahead and pollute the air and that's going to be rival right, they're taking away my clean air. There was this much clean air and they took some of it away, now I no longer have it. So we're fighting for this clean air and it's non-excludable, we can't stop the factory from using that air just like they can't stop us from using it, right? So that air and kind of just basically things in the environment in general, we're going to see are pretty much common resources, they're going to be things that are rival and non-excludable. So just like the fish in the ocean, right, The fish in the ocean are common resources, but what about the dating scene, right? There's plenty of fish in the ocean. In our dating scene, we've got non-excludable, right? If I'm dating someone, essentially you can't date the same person, right? So we're going to have that rival situation, but it's non-excludable. You can't keep someone out of the dating scene. Everyone can come into the dating scene and try and find a partner there, right? So it's going to be rival and non-excludable. Excludable. Cool, so that's common resource there. Let's finish up here with public goods. Alright, so the first public good, so one of you had this great example above of this non-rival, non-excludable good of national defense. So national defense is a great example of a public good. So if you think about it right, like we said, you can't exclude someone from national defense. If you're going to protect the neighbor, you have to protect the other person too, right? You can't leave someone out of that protection and it's non-rival, right? For me being protected, it doesn't stop you from being protected by the same defense, right? We're both protected by the same military or whatever and we're both being protected by that same national defense. Me being protected doesn't stop you from being protected, right. So non-rival and non-excludable national defense. Another great one is the court system. So here we finally bring that analogy from the beginning of the lesson altogether. We finally compared a cheeseburger to a court system here, right? A cheeseburger being a private good and a court system being a public good. So now you know if anyone ever asks you what is the difference between a cheeseburger and the court system? You've got a perfect answer. Well let me tell you something about rivalry and excludability, right? And you can give them this whole long spiel about the cheeseburger and the court system. So here we go, the court systems public good right? Because first it's non-excludable right? It's available for everyone. Everyone is allowed to take a claim to court and that's part of our US court system right, that's part of the freedoms that we have here, and it's non-rival. Me using the court system doesn't make it so you can't use the court system right? It's available there for everybody, it's a non-rival and non-excludable. Cool, last one here, a public good would be so we had the toll road being a club good, right, because there is a toll, it makes it excludable. But what about a public road? And here we're still going to say it's uncongested here. Right? I don't want to deal with this idea of traffic. So it's just a clear road, a public road, right? You can't exclude anyone from using it, it's a public road, everyone's allowed to use it right? So the public road right there behind me. It's non-excludable and it's non-rival right, when it's uncongested me using the road doesn't stop you from using the road right, so we're both able to use the road, non-rival, non-excludable, so here you go. These are the 4 types of goods that we're going to deal with here. Private goods, club goods, common resources, and public goods. Now before we move on, I want to make a quick note about these non-excludable goods. Common resources and public goods, we're going to see that there's going to be some problems. These guys are going to need help, alright? By themselves, they're going to struggle. They're going to struggle to be brought to market or they're just going to generally be overused, okay? And we're going to see these details in future videos, okay, but I just want to point out now that these non-excludable things, common resources, and public goods, they are going to need help. Alright? So let's go ahead and move on to the next video.

Label the goods as Private Goods (PRI), Common Resources (CR), Club Goods (CG), or Public Goods (PUB).

Alright. Let's go ahead and label these goods as private goods, public goods, common resources, and club goods. Okay? So remember when we've got these goods, we're going to think of the 2 traits. Right? We've got, the traits of excludability, excludable or non-excludable, and over here we'll have the rival or non-rival. Right? We're going to be basing them on these traits. So when it's rival and excludable, that's when we get a private good right. When it's rival and non-excludable, we get a common resource. Excludable and non-rival, that's where we have our club goods, and non-excludable and non-rival, that's our public goods over here right. So based on that information, let's go ahead and go 1 by 1 and let's do these, these goods. So first we have a steak dinner, right? What do we think when we got a steak dinner? Well is it rival? First of all, yeah, right? If I eat the steak dinner, you can't eat the same steak dinner, right? There's only one of them and one person has to eat it. So it is rival. How about excludable? Yeah, generally you're going to have to pay for the steak dinner, right? There's a way to prevent people from eating the steak dinner and that's by them not having paid. So it is rival and excludable. We're going to see that a steak dinner is a private good. I'll put PR there for private goods, right? We've got these acronyms at the top that we'll use. So steak dinner is a private good. Let's go down the row here to the fireworks show. So what about a fireworks show? Alright, let's think about that. Is it rival or let's start with excludable. Is it excludable or non-excludable? Well, it's kind of tough to exclude someone from a fireworks show, right? They would have to probably build like some giant wall or something to keep people from seeing the fireworks, right? In general, fireworks you can kind of just see from anywhere. So I would say that fireworks are pretty much non-excludable, right? It's kind of hard to keep someone from seeing them. And how about rival versus non-rival? Well, me watching a fireworks show doesn't stop you from enjoying it also, right, so we can both enjoy the same fireworks show without it affecting the other one. So it's non-rival. We see a non-rival, non-excludable good here. So we're going to say that this fireworks show is a public good. Cool? Let's go on to the next one. Forest lumber. How about forest lumber? In this case is it excludable or non-excludable? Well in this case right, it's non-excludable, right? Someone can go to the forest and just chop down a tree right? In the absence of any specific laws, you can just kind of go out there and chop a tree down. You can't really exclude someone from using that forest and getting some lumber, but what about rival and non-rival? Well in this case right, if I chop the tree down, you can't chop that same tree down, right? We are rival in consumption for that tree. So it is going to be rival and non-excludable here. We're going to have a common resource. I'm going to put CR for a common resource there. How about traffic signals? Well traffic signals, are they excludable or non-excludable? Here we see that they're non-excludable, right, because me using a traffic signal and waiting for a red light or a green light doesn't stop you from using that same traffic signal, right? We can use the same traffic signal and it doesn't, or excuse me, that would be non-rival, right? Because we're using the same traffic signal and it doesn't affect the other one, right? That's when it's a non-rival, we can both use the same amount of the good. It's non-excludable because there's no way to prevent someone from using the traffic signal, right? It's there, it's available for us to use to direct through traffic, so you can't exclude someone there. It's non-excludable. Non-excludable and non-rival, we're going to have a public good here. Cool. Let's go on to the US Census data, top of the next row. So the US Census data, is that excludable or non-excludable? Well US Census data is just public information. The government goes and gets all this data from all of the residents and then it makes it publicly available because it knows that this kind of information is very useful to a lot of different people and a lot of different businesses. So it's non-excludable, right? They don't keep anybody from accessing this information and it's non-rival also, right? Me accessing the information doesn't take it away from you. We can both access the same quantity of information and it doesn't affect either of us. So it's non-rival and non-excludable. We have another public good here. How about computer software? Computer software is excludable, right? You usually have to pay to get software. So we're going to have an excludable good there, and is it rival or non-rival? Well in this case right, it's non-rival, right? Me using the software doesn't stop you from using the same software, right? Their software is very easily replicated, there's no extra cost to the company providing the software, right? When you get a copy of Windows, everyone's using the same copy of Windows, right? It's just essentially a serial number that you have or something like that. So we have a non-rival situation here and it's excludable. So we've got a club good, right? This is a club good. You have to join the club of the software company to get access here. So computer software is a club good. How about a pair of shoes? So a pair of shoes, right? If I'm wearing a pair of shoes, you can't wear that same pair of shoes. We're going to be rival in consumption for that pair of shoes, so we're rival there and is it excludable? You usually have to pay for shoes, right? So it's going to be excludable and rival there. We've got a private good. How about an Uncongested Toll Road? So we talked about this one a little bit right. So a Toll Road is excludable right, cause you have to pay to go on the toll road. So it's an excludable good. How about rival or non-rival? When it's uncongested right, it doesn't matter that you're on the road. I can get on the road and you're not going to affect me, right? There's no traffic, I can get on the road and use it just the same. So it's non-rival in that case, right? Non-rival and excludable, we've got a club good. Cool. I love this. We've got a lot of examples here, right? This is great. Let's go on to this next one, City Sewer System. How about the city sewer system? In this case, is it excludable or non-excludable? Generally, everyone's connected excludable? And is it rival or non-rival? Well my use of the sewer system doesn't really affect your use, right? We both put all our waste into it, it's non-rival. There's just one sewer system that we all use together. It's non-rival and non-excludable, We've got a public good here. Cool. Go on to this car. How about a car? Well it's going to be rival, right? Because if I use the car, you can't use the same car, right? We're going to fight for I guess the driver's seat, right? There can only be 1 person driving this car, right? We're going to be rival in consumption. Yes we can carpool, but the idea is that only one person can be like this is where we're going, this is rivaling consumption to use this car. Me owning the car means you can't own the same car, right? Only I can own that copy of that car. And it's excludable right because you have to pay for a car generally unless you're playing Grand Theft Auto or something. So we're going to have a private good here, right? Private good, excludable and rival. How about WiFi? Well WiFi, right, if I'm connected to a WiFi, it generally doesn't affect your connection to WiFi, right? So in general we're going to have this non-rival situation where we can all connect to the same WiFi connection and it doesn't affect each other, right? So it's going to be non-rival, but it is excludable, right? We set passwords, you have to pay for the Internet service, so it's going to be excludable here and it's non-rival. You have to join the club to get some WiFi, so this is going to be a club good. Last but not least, we've got fish in the ocean. We've talked about this one right, this is a great example of common resource right? Because we've got it, it's non-excludable, right? No one can stop you from going out into the ocean, putting out your rod and catching a fish, but if you catch that fish, I can't catch the same fish. So it's going to be rival and consumption. Non-excludable and rival, that gets us to our common resources and there we go. We've gone through quite a bit of examples there. Hopefully you guys feel a lot more comfortable with the different types of goods, so let's go ahead and move on to the next video.

A slice of pizza is:

• A. Rival
• B. Non-rival
• C. Non-excludable
• D. Both (a) and (c)

An example of an excludable good is:

• A. The court system
• B. Public roads
• C. National Defense
• D. MP3 downloads