Defining Four Types of Goods
First of all we should define two categories and terms for public goods: nonecludable and nonrival.
Nonexcludable means that people who don’t pay can’t be easily prevented from using goods.
Nonrival means that one’s usage doesn’t reduce the ability of another person to use the good. It’s inefficient to exclude anyone.
These two divides goods in four types: Private Goods, Common Resources, Club Goods, Public Goods.
Private Goods: Only people who pays can use and benefit from the goods. There’s an incentive to pay. Hamburges, smartphones, clothing etc. can be examples for these types of goods.
Public Goods: In this type products or services benefits even the ones who didn’t pay for it. So if you can’t exclude the non-payers so people develop habit of not paying for these types of goods. This means there’s an incentive for not paying.
But if no one pays for the goods how do we produce the goods? With taxation and government provision. One person’s benefit from national defense doesn’t reduce others benefit. Public goods also provide a challenge for the markets. National defense can be an example for this type of goods.
Common Resources: These are nonexcludable but rival. You can’t stop people from using or benefiting them. But someones usage effects the others. These types of goods are scarce so they become rival. Such as environmental resources or public roads.
Club Goods: These are excludable but nonrival. Only the ones who pay get to use these good so they are excludable. Also the number of people benefiting from these goods doesn’t effects others in sense of benefiting. Wifi services or the cable TV in your home are the common examples for these types of goods.
