Chapter 11 Blog

In chapter 11, Mankiw explains two ways goods can be categorized: by excludability, or if a person can be prevented from using it, and rivalry in consumption, whether one person’s use of a good diminishes other people’s use. Goods are defined into four categories: private goods, public goods, common resources, and goods produced by natural monopolies. Private goods are the types of goods like food, clothing, and cars that we see traded in markets, because these goods are excludable and rival in consumption. Markets do not work well for other goods because oftentimes their prices or costs cannot be quantified by a buyer’s willingness to pay, they are more abstractly quantified by other factors. Public goods, such as national defense or basic research, are not rival in consumption or excludable. Because these goods are free, people have an incentive to free-ride, or enjoy the benefit without paying for the good. Economists attempt to decide whether the government should provide certain public goods based on cost-benefit analysis, where they try to quantify the cost or benefit to society of the public good compared to the cost of providing it.  Common resources are also not excludable, but they are rival in consumption. Some examples of these are clean air, clean water, and fish in the ocean. People generally overuse common resources because they do not have to be paid for, so governments must try to limit use of common resources through taxation or regulation, or turning it into a private good.