Principles of Economics, 10e: Chapter 11: Public Goods and

Principles of
Economics, 10e
Chapter 11: Public Goods and
Common Resources
Mankiw, Principles of Economics, Tenth Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part. 1
Chapter Objectives (1 of 2)
By the end of this chapter, you should be able to:

• Examine the implications of excludability and rivalry on the market for a good.
• Identify a good as a public good, private good, common resource, or club good in a
given scenario.
• Determine whether a good is excludable in consumption.
• Determine whether a good is rival in consumption.
• Explain the presence of the free-rider problem, given an example of a public good.
• Explain why private firms find it unprofitable to produce public goods.
Chapter Objectives (2 of 2)
• Name a problem associated with using cost-benefit analysis to determine the optimal
quantity of a public good.
• Explain why consumers tend to overuse common resources, resulting in the tragedy of
the commons.
• Explain the role of property rights on achieving market efficiency.
11-1
The Different Kinds of Goods
Introduction
• We consume many goods without paying

• Rivers, mountains, beaches, lakes, playgrounds, parks
• Without prices, private markets cannot ensure that such goods are made available and
used correctly for the maximum benefit of society as a whole
Characteristics of Goods
• Excludability*
• Property of a good whereby a person can be prevented from using it
• Rivalry in consumption*
• Property of a good whereby one person’s use diminishes other people’s use
*Words accompanied by an asterisk are key terms from the chapter.
Types of Goods (1 of 2)
• Private goods*
• Goods that are both excludable and rival in consumption
• Public goods*
• Goods that are not excludable nor rival in consumption
Types of Goods (2 of 2)
• Common resources*
• Goods that are rival in consumption but not excludable
• Club goods*
• Goods that are excludable but not rival in consumption
Figure 1 Four Types of Goods
• Goods can be grouped into four categories

according to two characteristics:
1. A good is excludable if people can be
prevented from using it.
2. A good is rival in consumption if one
person’s use of the good diminishes
other people’s use of it.
• This diagram gives examples of goods in
each category.
Active Learning 1: Categorizing Roads
• A road is which of the four kinds of goods?

• Hint: The answer depends on whether the road is congested or not, and whether it’s a
toll road or not. Consider the different cases.
Active Learning 1: Answers
• Rival in consumption? Only if congested

• Excludable? Only if a toll road
• Four possibilities
• Uncongested non-toll road: Public good
• Uncongested toll road: Club good
• Congested non-toll road: Common resource
• Congested toll road: Private good
Ask the Experts: Congestion Pricing
“In general, using more congestion charges in crowded transportation networks—such as

higher tolls during peak travel times in cities, and peak fees for airplane takeoff and
landing slots—and using the proceeds to lower other taxes would make citizens on
average better off.”
Source: IGM Economic Experts Panel, January 11, 2012.
11-2
Public Goods
The Free-Rider Problem (1 of 2)
• Free rider*
• A person who receives the benefit of a good but avoids paying for it
• The free-rider problem
• Public goods are not excludable
• Prevents the private market from supplying the goods
• Market failure
The Free-Rider Problem (2 of 2)
• Government can remedy the free-rider problem if total benefits of a public good
exceeds its costs
• Provide the public good
• Pay for it with tax revenue
• Make everyone better off
• Problem: Measuring the benefit is usually difficult
Some Important Public Goods (1 of 2)
• National defense
• Very expensive public good
• Everybody agrees national defense is a public good the government should provide
• Basic research
• Subsidized by government
• The public sector fails to pay for the right amount and the right kinds
• Difficulties: Hard to measure the benefits and decisions are made by members of
Congress, not scientists
Some Important Public Goods (2 of 2)
• Fighting poverty
• TANF (Temporary Assistance for Needy Families program)
• Provides temporary income support for poor families with children
• SNAP (Supplemental Nutrition Assistance Program)
• Subsidizes the purchase of food for those with low incomes
• EITC (Earned Income Tax Credit)
• Provides tax rebates for those who work at low-wage jobs
The Difficult Job of Cost–Benefit Analysis
• The government
• Provides public goods because the private market on its own will not produce an
efficient quantity
• Must determine what kinds of public goods to provide
• Must determine what quantity of the public good to provide
Cost–Benefit Analysis
• Cost–benefit analysis*
• A study that compares the costs and benefits to society of providing a public good
• Estimate the total costs and benefits of the project to society as a whole
• Are rough approximations at best
• There are no price signals to observe
Active Learning 2: Let’s Build a Fountain
• You and your neighbors (about 200 people) would love to have a water fountain in the
neighborhood park. Each of you values having the fountain at $100. The neighborhood
association finds a construction firm that will build the fountain for $7,000. A hat is
passed around for the contributions, but once the money is counted, there are only
$3,000 collected.
A. Should the fountain be built?
B. What happened? Will the fountain be built?
C. Can the government help build the fountain? How?
Active Learning 2: Answers
A. Should the fountain be built?

• Yes, because the benefit (200 people × $100 = $20,000) exceeds the cost ($7,000)
B. What happened? Will the fountain be built?
• The free-rider problem: some didn’t contribute because they can still enjoy the fountain if
built
• Because only $3,000 were collected, the fountain cannot be built
C. Can the government help? How?
• The government can tax every neighbor $35 and then use the money to build the fountain
11-3
Common Resources
The Tragedy of the Commons (1 of 3)
• Tragedy of the commons*

• A parable that illustrates why common resources are used more than is desirable
from the standpoint of society as a whole
• Medieval town where sheep graze on common land
• As the population grows, the number of sheep grows
• The amount of land is fixed, the grass begins to disappear from overgrazing
• With no grass left, raising sheep is impossible
• Social and private incentives differ

• The private incentives (using the land for free) outweigh the social incentives (using
it carefully)
• The tragedy arises because of a negative externality
• Allowing one’s flock to graze on the common land reduces its quality for other
families
• People neglect this external cost, resulting in overuse of the land
• Possible solutions:
• Regulate the number of sheep per family
• Internalized the externality by taxing sheep
• Auction off a limited number of sheep-grazing permits
• Make land private property: divide the land among town families
Some Important Common Resources (1 of
2)
• Clean air and water
• Negative externality: pollution
• Regulations or corrective taxes
• Congested roads
• Negative externality: Congestion
• Corrective tax: Charge drivers a tool
• Tax on gasoline
Some Important Common Resources (2 of
2)
• Fish, whales, and other wildlife
• Oceans: Least regulated common resource
• Needs international cooperation
• Difficult to enforce an agreement
• Fishing and hunting licenses
• Limits on fishing and hunting seasons
• Limits on size of fish
• Limits on quantity of animals killed
Active Learning 3: Social Media
TikTok, Twitter, Instagram, and so on are examples of social media that most of us use
A. How is social media a common resource?
B. In your use of social media, have you had to deal with undesirable behavior of others?
Is this an externality?
C. Do you think the providers of social media forums should regulate the behavior of
users? If not, why not? If so, how?
11-4
Conclusion: Property Rights and Government Action
Conclusion
• Market fails to allocate resources efficiently

• When something of value has no price attached to it
• When property rights are not well established
• Government can potentially solve the problem
• Help define property rights and unleash market forces
• Regulate private behavior
• Use tax revenue to supply a good that the market fails to supply
Think-Pair-Share Activity
While watching a nature documentary, you find that Kenya, Tanzania, and Uganda have made it
illegal to kill elephants and sell their ivory. But countries like Botswana, Malawi, Namibia, and
Zimbabwe allow people to kill elephants, but only those on their own property. Let’s talk about
elephants and chickens:
A. How is an elephant like a chicken? Different?
B. Which are going extinct: elephants of chickens?
C. How is it possible to turn an elephant into a chicken?
D. Where is the elephant population increasing?
Self-Assessment
• What is a common resource that you make use of?

• Without government intervention, will you (among others) use this good too much or
too little? Why?
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Principles of

By the end of this chapter, you should be able to:

• We consume many goods without paying

*Words accompanied by an asterisk are key terms from the chapter.

*Words accompanied by an asterisk are key terms from the chapter.

*Words accompanied by an asterisk are key terms from the chapter.

• Goods can be grouped into four categories

• A road is which of the four kinds of goods?

• Rival in consumption? Only if congested

“In general, using more congestion charges in crowded transportation networks—such as

Source: IGM Economic Experts Panel, January 11, 2012.

*Words accompanied by an asterisk are key terms from the chapter.

*Words accompanied by an asterisk are key terms from the chapter.

A. Should the fountain be built?

• Tragedy of the commons*

• Social and private incentives differ

• Market fails to allocate resources efficiently

A. How is an elephant like a chicken? Different?

B. Which are going extinct: elephants of chickens?

C. How is it possible to turn an elephant into a chicken?

D. Where is the elephant population increasing?

• What is a common resource that you make use of?

Click the link to review the objectives for this presentation.

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