Question

Classify each of the following items as a public good, a private good, a natural monopoly good, or a common resource. Explain your answer. Highway patrol services Internet service Fish in the Atlantic ocean UPS courier service

Short answer

Highway patrol services: public good, Internet service: private good, Fish in the Atlantic Ocean: common resource, UPS courier service: private good.

Step-by-step solution

Classify Highway Patrol Services

Highway patrol services are classified as a public good. Public goods are non-excludable and non-rivalrous, meaning that one individual's use does not reduce availability for others, and people cannot be easily excluded from using them. Highway patrol services fit this definition because they provide safety and enforcement benefits that are available to all drivers without reducing the service’s availability to others.

Classify Internet Service

Internet service is classified as a private good. Private goods are excludable and rivalrous, meaning people can be prevented from using them if they do not pay, and one person's use can reduce the availability for others. Internet service fits this definition because access is controlled (only available to paying customers) and bandwidth can be limited, causing congestion as more people use it.

Classify Fish in the Atlantic Ocean

Fish in the Atlantic Ocean are classified as a common resource. Common resources are non-excludable but rivalrous. They are available to everyone, but one person's consumption reduces their availability for others. Fish in the Atlantic Ocean fit this classification because anyone can fish without exclusive rights, but overfishing can deplete fish stocks and reduce availability for others.

Classify UPS Courier Service

UPS courier service is classified as a private good. Like internet service, UPS couriers fit the definition of a private good because they are excludable and rivalrous. Only those who pay for delivery services can use them, and the resources (such as trucks and drivers) are limited, meaning one person using the service can reduce its availability to others.

Key concepts

public goods

Public goods are unique in the world of economics because they possess two distinct characteristics: non-excludability and non-rivalry.

Non-excludability means that it is hard to prevent anyone from using the good once it has been provided. For example, once freeway or highway patrol services are available, they are accessible to all citizens regardless of whether they directly pay for them.

Non-rivalry means that one person's use of the good does not reduce its availability to others. So, when highway patrol services patrol a stretch of road, their presence does not diminish the safety benefits that other drivers receive. Public goods are financed by taxes because they benefit all citizens, and excluding someone would be impractical and unbeneficial.

Examples of public goods include national defense, public parks, and street lighting. Society benefits as a whole from their existence, making them crucial for economic welfare.

private goods

Private goods are commodities that are both excludable and rivalrous.

Excludable means that people can be prevented from using the good if they do not pay for it. Contrast this with public goods, where everyone has access. For example, an internet service provider restricts access to its services to only those who have paid.

Rivalrous means that one person's consumption of the good can diminish its availability for others. For instance, if many people use the internet service at the same time, bandwidth can become congested, reducing the speed for everyone.

Other examples of private goods include food, clothing, and cars. Buyers are the only ones who benefit from them, and using more can reduce the amount available for others. Therefore, private goods are commonly transacted in markets where they are bought and sold.

common resources

Common resources are partially like public goods but with a crucial difference. They are non-excludable but rivalrous.

Non-excludable means that it is difficult to prevent people from using the resource. Anyone can fish in the Atlantic Ocean without exclusive rights, just like citizens can visit a public park.

Rivalrous means that one person's use of the resource reduces its availability for others. Overfishing in the Atlantic Ocean can lead to fewer fish for other people.

Other examples of common resources include forests, public pasture lands (commons), and clean air. Because common resources can be easily depleted or overused, they potentially suffer from the

natural monopoly goods

Natural monopoly goods are a bit different from the other types of goods. They are excludable but non-rivalrous.

Excludable means people can be prevented from using the good unless they pay for it. However, providing the good usually has high fixed costs and low marginal costs, resulting in only one or a few providers efficiently supplying the good.

Non-rivalrous means that one person's use doesn’t significantly reduce the quantity available to others. Cable TV is a prime example. Once the infrastructure is in place, adding more subscribers incurs little to no additional cost and does not diminish service quality for existing users.

Other examples include utilities like water supply, electricity, and natural gas. These goods are often regulated by the government to avoid monopolistic practices and ensure fair pricing and access for consumers.