The study of economics is essentially the study of goods in markets. Goods come in many different forms and in order to study each one well, one must be able to differentiate and classify goods. One of the most common ways to distinguish the type of goods is showed in the table below. This table highlights two main concepts on which goods are classified: excludability and rivalry. The dictionary defines excluding as to shut or keep out. Therefore an excludable good is a good that one can prevent another from owning and using by owning it themselves. So if person A owns the excludable good, then person B can be prevented from owning it. If anyone could not be prevented from getting benefits from a good or service, then this good or service is called "non-excludable." Now taking a look at the way rivalry impacts goods, the definition of "rival" is that one of two or more striving to reach or obtain something that only one can possess. That means a "rival good" is a limited resource to be consumed. In other words, the amount of the good is finite, and therefore if person A were to acquire more of the good, it would mean that person B has less of the good.
If the good is both excludable and rival, it is a Private Good. If the good is non-excludable but rival, it is a Common Good. If the good is excludable but non-rival, it is a Club Good. If the good is non-excludable and non-rival, it is a Public Good.
The classic examples of the private goods are the "typical goods" around us in daily life, such as food, clothes and flowers. There are usually limited amounts of these typical goods and as a result, the sellers and owners of these goods could prevent or exclude non-payers from having and enjoying the benefits of the goods. Because of their relative scarcity, most private goods are sold for profits.
Due to the features of common goods, they are easily over-consumed or abused. With no excludability, it is in the rational interest of individuals to consume and gather as much of the good for themselves as the rivalry factor means that their will be less for them if they do not consume it. This phenomenon spawned the term "Tragedy of the Commons", which refers to the problem of depleting limited resources of common goods.
Club Goods are also called "Artificially Scarce Goods" which are excludable but non-rival. This type of goods often requires certain "membership" in order to enjoy the benefits of goods. There are usually efficient ways to prevent non-payers to access the goods. One of the most classic examples of club goods is Cable TV, which requires a monthly fee but is non-rival after the payment.
Public Goods (also as Collective Goods) are non-excludable and non-rival. Most of the information goods can be categorized as public goods. The other typical examples of public goods include the air we breath, public parks and street lights.
The biggest problem usually associated with public goods is the "Free Rider Problem". The characteristics of the public goods determine that they are easily to be consumed without payment.
Features of information goodsEdit
Most of the information goods naturally have the characteristics of public goods. In a summary, they have the features of non-rival goods, possibly excludable goods, discrete choices, experience goods and durable goods, etc.
- Merriam-Webster [Dictionary]