Market Failure: Public Goods and Common Resources

There are four types of goods in economics, which are defined based on excludability and rivalrousness in consumption.

A private good is both excludable and rivalrous.

Individuals cannot be excluded from using a public good, and one individual's use of it does not limit its availability to others.

The government is providing an efficient quantity of a public good when its marginal benefit equals its marginal cost.

The aggregate demand curve for a public good is the vertical summation of individual demand curves.

The government uses cost-benefit analysis to decide whether to provide a public good.

The tragedy of the commons is the overexploitation of a common good by individual, rational actors.

The free-rider problem is when individuals benefit from a public good without paying their share of the cost.