The Four Types of Goods
Goods are usually classified according to two characteristics: excludability and rivalrousness. Excludability describes whether or not it’s possible to prevent people from consuming a good. Meanwhile, rivalrousness describes whether multiple people can consume the same good at the same time. Starting from there, we can categorize all physical products into one of four types of goods, depending on whether they are excludable or non-excludable and whether they are rival or non-rival. Specifically, we are going to look at private goods, public goods, common resources, and club goods.
1. Private Goods.
Private Goods describe all products that are both excludable and rival. That means anyone who isn't the owner of the good can be excluded from consumption, and the product can only be consumed by one person or group of people at a time. Therefore, these types of goods always have an owner and usually have to be purchased before consumption. Examples of private goods include products like ice cream, clothing, cars, or housing. In fact, most of the goods you’ll see in your daily lives are private goods.
2. Public Goods
Public goods refer to all products that are non-excludable and non-rival. That means no one can be prevented from consuming them, and they can be used by multiple people or groups of people at the same time. These types of goods are often supplied by the government and paid for by taxpayer money. Examples of public goods include law enforcement, fire departments, national defense, or access to fresh air.
3. Common Resources
Common resources describe all products that are non-excludable but rival. That means nobody can be prevented from consuming them, but they can only be consumed by one person or group of people at the same time. The combination of those two characteristics often results in an overuse of these types of goods, which is referred to as the tragedy of the commons. Examples of common resources include freshwater, fish, timber, or pasture.
4.Club Goods
Club goods refer to all products that are excludable but non-rival. That means individuals can be prevented from consuming them, but they can be used by multiple people or groups of people at the same time. These types of goods are often provided by natural monopolies because their marginal costs are extremely low. Examples of club goods include products like cable television, cinemas, wireless internet, or toll roads.