Chapter 11 Review

This chapter is was relatively easy to understand but I had to look deeper in the "Excludable" and "Rival in Consumption" grid.  I would say that the overall difficulty was a 2/3.  I feel as if this chapter was a bit confusing to understand but the book explained it well with all the examples and case studies.

The chapter first introduces concepts such as excludable goods, which is the property of a good whereby a person can be prevented from using it, and rivalry in consumption, which is the property of a good whereby one person’s use diminishes other people’s use.

Then, the chapter talks about all the types of goods in the market. There are private and public goods, common resources, and goods produced by a natural monopoly. This chapter focuses on the public goods and common resources. Private goods are goods that are both excludable and rival in consumption while common resources are rival in consumption but not excludable. The examples that the book gives of each type of good are very helpful in understanding these terms.

The book introduces a problem with public goods, and a free rider, who is the person that receives the benefit of a good doesn't have to pay for it. The book uses a case study of fireworks as an example. If a small entrepreneur were to put on a show, there would be no incentive to pay because you could be a free rider, meaning there wouldn’t be an efficient outcome in the market. The government can solve this by taxing the people (only if the benefits of a public good exceed the cost) and use the tax revenue to pay for it, making the market more efficient.

An interesting idea introduced is the “Tragedy of the Commons,” which is a situation that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.