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    Types of Goods-Min

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    Hoang Minh Hien
    There are four main types of goods: private goods, public goods, merit goods, and demerit goods. Private goods are excludable and rival, meaning one person's consumption reduces availability for others. Public goods are non-excludable and non-rival, so one person benefiting does not prevent others from also benefiting. Merit goods produce positive externalities and tend to be underprovided in the free market, while demerit goods produce negative externalities and tend to be overconsumed in the free market due to information failures.

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    Types of Goods-Min

    Uploaded by

    Hoang Minh Hien
    38 views6 pages
    There are four main types of goods: private goods, public goods, merit goods, and demerit goods. Private goods are excludable and rival, meaning one person's consumption reduces availability for others. Public goods are non-excludable and non-rival, so one person benefiting does not prevent others from also benefiting. Merit goods produce positive externalities and tend to be underprovided in the free market, while demerit goods produce negative externalities and tend to be overconsumed in the free market due to information failures.

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    There are four main types of goods: private goods, public goods, merit goods, and demerit goods. Private goods are excludable and rival, meaning one person's consumption reduces availability for others. Public goods are non-excludable and non-rival, so one person benefiting does not prevent others from also benefiting. Merit goods produce positive externalities and tend to be underprovided in the free market, while demerit goods produce negative externalities and tend to be overconsumed in the free market due to information failures.

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    38 views6 pages

    Types of Goods-Min

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    Hoang Minh Hien
    There are four main types of goods: private goods, public goods, merit goods, and demerit goods. Private goods are excludable and rival, meaning one person's consumption reduces availability for others. Public goods are non-excludable and non-rival, so one person benefiting does not prevent others from also benefiting. Merit goods produce positive externalities and tend to be underprovided in the free market, while demerit goods produce negative externalities and tend to be overconsumed in the free market due to information failures.

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    Types of goods

    CONTENTS
    1. Types of goods
    2. Private goods
    3. Public goods
    4. Merit goods
    5. Demerit good
    Private goods

    Private goods

    Private goods are goods bought and consumed by individual consumers or firms for their own benefit.

    Examples: food, clothes and textbooks.

    Private goods are excludable

    It is possible to exclude or prevent some people from using a private good. This is normally done by
    charging a price. If the price is not acceptable, then that good will not be consumed. Once one person
    has purchased a private good, it cannot be consumed by others.

    Private goods are rival

    There is rivalry for private goods. The consumption of a private good by one person reduces the
    availability for others. For example, when we purchase food, clothes or books then this means that
    fewer of these goods are available for purchase by others.

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    Public goods
    Public goods

    A public good is a product that one individual can consume without reducing its availability to others and
    from which no one is deprived.

    Examples: national defence, sewer systems, and lighthouses.

    Public goods are non-excludable

    Public goods are non-excludable: once the good has been provided for one consumer, stopping all
    other consumers from benefitting from the good is impossible.

    Public goods are non-rival.

    As more and more people consume the good, the benefit to those already consuming the product
    will not be diminished. Streetlights for example.

    The free-rider problem

    The free-rider problem occurs when it is not possible to exclude other people from consuming a good
    that someone has bought.

    The free market fails to provide public goods such as defence or street lightning.

    This is because they would not be able to supply them for profit due to their characteristics:

    non-excludability and
    non-rivalry.

    This is called the free-rider problem. Because public goods are non-excludable, it is costly or
    impossible for one user to prevent others from it.

    Example

    If I spend money erecting a flood-control dam to protect my house, my neighbours will also be
    protected by the dam. I cannot prevent them from enjoying the benefits of my expenditure.

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    Merit goods

    Merit good

    A merit good is defined as a good that is better for a person than the person who may
    consume the good realises.

    Due to information failure, merit goods tend to be

    under-produced and

    under-consumed

    The government may feel that people consume too little of things that are good for
    them: things such as education, preventative health care and sports facilities.

    Merit goods produce positive externalities.

    The government could either provide them free or subsidise their production.

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    Demerit good

    Demerit good

    Demerit goods, on the other hand, are those products that are worse for the individual
    consumer than the individual realises.

    Due to information failure, demerit goods tend to be

    overproduced and

    overconsumed.

    For example, when a person makes a decision to smoke, he is not fully in possession
    of all of the information concerning the harmful effects of smoking.

    Passive smoking can also cause negative externalities.

    This causes costs to non-smokers in the form of discomfort and respiratory problems
    where there is extensive exposure.

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    MAKE A MINDMAP

    Private Public
    goods goods

    Types
    of
    goods
    Demersit
    good

    Mer
    it
    good
    s

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