Classification of Goods (WSU, 2017)
Excludable Non-Excludable
Rival Private Goods Common Goods
(Purchased Cars, Chocolates, Fresh water fish,
Clothes.) Timber,Pastures)
Non-Rival Club Goods Public Goods
(Cable TV, Toll roads, Cinema (National Defence, Civil law
Wi-fi, theme-parks) and order,
Club Goods: services require a unique user to pay a certain amount to use the service, but the
use of the service is available to all implying non-rivalry, hence it is a club good..
These are often provided by Natural Monopolies 1 They involve a large investment and the firm
enjoys economies of scale. They have one of the key characteristics of public goods. They are
non-rival (when used by some, their utility is not completely destroyed), however they might
be made temporarily unusable by others. Examples are parks, beaches which might be crowded
with people and temporarily denied to others. They involve large amounts of investments.
These are unutilized because of their excludability (limited only to the users who can pay
A public good is the exact opposite of a private good: it is a good that is both nonexcludable
and nonrival in consumption. A sewage system is an example of a public good: you can’t keep
a river clean without making it clean for everyone who lives near its banks, and my protection
from great stinks does not come at my neighbor’s expense. Here are some other examples of
public goods: Disease prevention. When doctors act to stamp out the beginnings of an
epidemic before it can spread, they protect people around the world. National defense. A
strong military protects all citizens. Scientific research. More knowledge benefits everyone.
Because these goods are nonexcludable, they suffer from the free-rider problem, so no
private firm would be willing to produce them. And because they are nonrival in
consumption, it would be inefficient to charge people for consuming them. As a result,
society must find nonmarket methods for providing these goods.
1
A natural monopoly exists in a particular market, if a single firm can serve that market at lower cost
than any combination of two or more firms ,OECD, 1993 (Shapiro & Khemani, 1993}
Private Goods:
Goods like bathroom fixtures or wheat have two characteristics that, as we’ll soon see, are
essential if a good is to be efficiently provided by a market economy. They are excludable:
suppliers of the good can prevent people who don’t pay for consuming it. They are rival in
consumption: the same unit of the good cannot be consumed by more than one person at the
same time. When a good is both excludable and rival in consumption, it is called a private good.
Wheat is an example of a private good. It is excludable: the farmer can sell a bushel to one
consumer without having to provide wheat to everyone in the county. And it is rival in
consumption: if I eat bread baked with a farmer’s wheat, that bread can no longer be eaten by
someone else.
If a good is nonexcludable, rational consumers won’t be willing to pay for it—they will take a
“free ride” on anyone who does pay. So there is a free-rider problem. Examples of the free-
rider problem are familiar from daily life. One example you may have encountered happens
when students are required to do a group project. There is often a tendency of some
members of the group to shirk, relying on others in the group to get the work done. The
shirkers free-ride on someone else’s effort. (I like this example the best!)
A common resource is a good that is nonexcludable but is rival in consumption. An example is
the stock of fish in a limited fishing area, like the fisheries off the coast of New England.
Traditionally, anyone who had a boat could go out to sea and catch fish—fish in the sea were
a nonexcludable good. Yet because the total number of fish is limited, the fish that one
person catches are no longer available to be caught by someone else. So fish in the sea are
rival in consumption. Other examples of common resources are clean air and water as well as
the diversity of animal and plant species on the planet (biodiversity). In each of these cases the
fact that the good, though rival in consumption, is nonexcludable poses a serious
Merit goods are those goods and services that the government feels that people will under-
consume, and which ought to be subsidised or provided free at the point of use so that
consumption does not depend primarily on the ability to pay for the good or service. These
goods can be excludable and [Link] generate positive externalities. The social benefit from
the consumption of these goods is greater than the private benefit. Examples: Education,
Health programmes, Free school meals. They are rejectable unlike the public good like defence
which is not rejectable
De-Merit Goods
Consumption of these goods is socially inappropriate. If left to free markets these goods will
be [Link] consumption of de-merit goods can lead to negative externalities which
causes a fall in social welfare. Consumers may be unaware of the negative externalities that
these goods create - they have imperfect information. A heavy tax called the Sin-Tax is
imposed on these goods. Examples: addictive substances, betting, gambling, pornography,
unhealthy snacks etc.
References:
Shapiro, D. M. and Khemani, R, S. (1993) Glossary of Industrial Organisation Economics and
Competition Law, Directorate for, Financial, Fiscal and Enterprise Affairs,OECD, 1993
WSU-Washigton State University. (2017, January). Public Goods and Common resources
Retrieved January 24, 2023, from
[Link]
