Question

Define rivalry and excludability and use these terms to discuss the four categories of goods.

Short answer

Rivalry refers to whether a good's consumption by one person prevents its consumption by others while excludability denotes whether a person can be prevented from using a good. Private goods are both excludable and rival, public goods are neither, common resources are rival but not excludable, and club goods are excludable but not rival.

Step-by-step solution

Definition of Rivalry & Excludability

Rivalry refers to the characteristic of a good where its consumption by one consumer prevents simultaneous consumption by other consumers. Excludability, on the other hand, refers to the property of a good whereby a person can be prevented from using it.

Application to Four Categories of Goods

(1) Private Goods are both excludable and rival. For example, a pizza - if a person buys and eats it, others can't consume it, and access to it can be denied. (2) Public Goods are neither excludable nor rival. Such as national defense - one person's consumption of national defense doesn't reduce its availability to others, and no one can be excluded from its benefits. (3) Common Resources or Common Goods are rival but not excludable, e.g., fish in the ocean - consumption by one reduces availability for others, but it's difficult to exclude others from fishing. (4) Club Goods are excludable but not rival, like a Netflix subscription - one can exclude others by password protection, but one's usage doesn't detract from others' viewing experience.