Classifying Goods SFLS

1. Classifying Goods and some Problems
part 1

2. Question:
Why are markets good
at making some things
but not other things?

3. A classical example in
textbooks is called “the
light house problem”

4. In the old days ships at
sea needed them, to be
prevent from crashing in
a storm.

5. They can use it for free,
the problem was how do
you get them to pay for
it?

6. Actually this example is
bad, they often did pay,
but the lesson is still
true.

7. Actually this example is
bad, they often did pay,
but the lesson is still
true.
Some goods can be used
for free, so if you can’t
make someone pay for it,
then no one would make
it, so then what?

8. Classifying Goods and some Problems:
1.) Classification and Good Types
3.) Problems of the Non-Excludables
2.) Providing Public Goods

9. Draw this big enough to be able to
write a couple of words within
each box and on the outside of the
box.
Classification and Good Types

10. Excludable - it is possible to prevent a
person from enjoying its
benefits.
Classification and Good Types

11. Excludable
Classification and Good Types

12. - it is impossible to prevent a
person from benefiting from it.
Non-excludable
Classification and Good Types

13. Excludable Non-excludable
Classification and Good Types

14. - its use by one person
decreases the quantity
available to someone else.
Rival
Classification and Good Types

15. Excludable Non-Excludable
Rival
Classification and Good Types

16. - its use by one person does
not decrease the quantity
available to someone else.
Non-Rival
Classification and Good Types

17. Excludable Non-Excludable
Rival
Non-Rival
Classification and Good Types

18. Classifying Goods and some Problems:
1.) Classification and Good Types
2.) Problems of the Non-Excludables

19. Private goods - A good or service that can
be consumed by only one
person at a time and only by
those people who have
bought it or own it.
Classification and Good Types

20. Private
Goods
A private good is both rival
and excludable.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival

21. - A good or service that can
be consumed simultaneously
by everyone and no one can
be excluded from enjoying
its benefits.
Public goods
Classification and Good Types

22. Private
Goods
Public
Goods
Excludable Non-Excludable
Rival
Non-Rival
A public good is both non-rival
and non-excludable.
Classification and Good Types

23. - a firm that
produces at lower
cost in the market
than many more
firms can.
(Artificially Scarce goods)
(Toll goods)
Natural Monopolies
Classification and Good Types

24. Private
Goods
Natural
Monopolies
Public
Goods
A good or service that is both non-rival
and excludable is produced by a natural
monopoly.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival

25. - A resource that can be
used only once but no
one can be prevented
from using what is
available.
Common Resources
Classification and Good Types

26. Private
Goods
Common
Resource
Natural
Monopolies
Public
Goods
A Common Resource is both
rival and non-excludable.
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival

27. Private
Goods
Common
Resource
Natural
Monopolies
Public
Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival

28. Classifying Goods and some Problems:
1.) Classification and Good Types
2.) Problems of the Non-Excludables
Good Types, a
little more detail…

29. Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Regular markets supply
these best because a
price can easy be
attached to it.
Private goods can be efficiently
produced and consumed in a
competitive market that
maximizes total surplus.
Private goods
Good Types…a little more detail

30. Why Markets Can Supply Only Private Goods Efficiently:
-You can stop someone else from using it, so you can
make money off of it.
Good Types…a little more detail
Goods that are
Excludable
Goods that are
Rivals
Result:
- There is not an infinite无限 supply of them,
so you can make money off of it.
Private goods can be efficiently produced and consumed
in a competitive market that maximizes total surplus.

31. Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Natural Monopolies type goods can
be efficiently produced and
consumed in a market, but since the
supply is virtually unlimited only a
few companies control the supply.
Like private goods but
with very few needed
suppliers to produce
the efficient amount of
goods.
Natural Monopolies
Good Types…a little more detail

32. Why Markets Can Supply Only Private Goods Efficiently:
-You can stop someone else from using it, so you can
make money off of it.
Good Types…a little more detail
Goods that are
Excludable
Goods that are
Rivals
Result:
- There is not an infinite无限 supply of them,
so you can make money off of it.
Private goods can be efficiently produced and consumed
in a competitive market that maximizes total surplus.

33. Natural Monopolies type goods can be efficiently produced
and consumed in a market, but since the supply is virtually
unlimited only a few companies control the supply.
Why Markets Can Supply Only Private Goods Efficiently:
Good Types…a little more detail
Goods that are
Excludable
Goods that are
Non-rivals
-You can stop someone else from using it, so you can
make money off of it.
- Since there is an infinite supply of these, it is difficult to
control and a market with very few suppliers seems
“natural”
Result:

34. Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Regular markets supply
these best because a
price can easy be
attached to it.
Private goods can be efficiently
produced and consumed in a
competitive market that
maximizes total surplus.
Private goods
Good Types…a little more detail

35. Public goods are in theory unlimited, so it’s hard
to put a price on them so markets don’t provide
these as much.
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Public goods
Good Types…a little more detail

36. Why Markets don’t do a good job with these types:
The good is not produced in the market, even if buyers collectively value
the good higher than the cost of providing it. Public Goods have these
qualities and therefore governments often have to produce them.
Good Types…a little more detail
Goods that are
Non-excludable
-You can’t stop someone else from using it, so you can’t
make money off of it and thus are free to use.
Goods that are
Non-rivals
- Since there is an infinite supply of these, it is difficult to
control and a market with very few suppliers seems
“natural”
Result:

37. Classifying Goods and some Problems:
1.) Classification and Good Types
3.) Problems of the Non-Excludables
2.) Providing Public Goods

38. -A person who enjoys the benefits of a good or service
without paying for it.
Because of the free-rider problem, the market would
provide too small a quantity of a public good.
To produce the efficient quantity, government action is
required.
Public Goods –The problem that some don’t pay
Good Types…a little more detail
Free Rider

39. Common resources have the biggest
problem of them all
Private
goods
Common
Resource
Natural
Monopolies
Public goods
Excludable Nonexcludable
Rival
Nonrival
Problems of the Non-Excludables

40. - Since there is a limited supply of these,
once they are gone there is no more.
You can’t stop me from consuming the good, and more
consumption by me means less of the good available for you.
Why Markets don’t do a good job with these types:
Goods that are
Non-excludable
-You can’t stop someone else from using it, so you can’t
make money off of it and thus are free to use.
Goods that are
Non-rivals
Result:
Problems of the Non-Excludables

41. Go watch this movie called
“The Lorax” it’s a famous
Dr. Seuss children’s book
that show the main idea that
is the problem.

42. So to Summarize so far…

43. Private
Goods
Common
Resource
Natural
Monopolies
Public
Goods
Classification and Good Types
Excludable Non-Excludable
Rival
Non-Rival

44. The end of part 1
Thanks 