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MACROECONOMIC POLICY: Government policy aimed at the aggregate economy, usually to promote the macro goals of full employment, stability, and growth. Common macroeconomic policies are fiscal and monetary.

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CONSUMPTION RIVALRY:

Whether or not the consumption of a particular good by one person prevents simultaneous consumption by another person. In other words, does consumption impose an opportunity cost on others. Rival consumption occurs if the consumption by one imposes an opportunity cost on others because others are prevented from consuming the good. Nonrival consumption occurs if the consumption by one does not impose an opportunity cost on others because others are not prevented from consuming the good. When combined with nonpayer excludability, the result is four alternative types of goods -- private, public, common-property, and near-public.
Consumption rivalry is a key characteristic that determines if a good can be consumed simultaneously by two or more people or if the consumption by one person prevents the consumption by another. The two alternatives of consumption rivalry are rival consumption and nonrival consumption. Rival consumption means two people cannot consume the same good simultaneously and nonrival consumption means they can.

A related characteristic of goods is nonpayer excludability, which is the ability to exclude nonpayers from consuming a good. These two characteristics give rise to four types of goods -- private (rival consumption and nonpayers can be excluded), public (nonrival consumption and nonpayers cannot be excluded), common-property (rival consumption and nonpayers cannot be excluded), and near-public (nonrival consumption and nonpayers can be excluded).

Consumption rivalry determines whether or not efficiency is achieved at a positive, nonzero, price -- something accomplished with market exchanges. The opportunity cost caused by rival consumption means efficiency is achieved if the price is positive. With no opportunity cost from nonrival consumption efficiency is achieved if the price is zero.

Rival or Not

Consumption rivalry has two possibilities -- rival or nonrival.
  • Rival: A good is rival in consumption if the consumption by one person prevents the simultaneous consumption by another, thus imposing an opportunity cost on others. A candy bar provides an example of rival consumption. If Roland Nottingham eats a candy bar, then Victor Thurgood cannot eat, consume, or enjoy this same candy bar. Roland's consumption prevents Victor's consumption.

  • Nonrival: A good is nonrival in consumption if the consumption by one person does not prevent the simultaneous consumption by another, thus does not impose an opportunity cost on others. A fireworks display provides an example of nonrival consumption. If Roland Nottingham watches a dazzling fireworks display lighting up the Shady Valley night sky from his front porch, doing so does not preclude Victor Thurgood from enjoying the same fireworks display from his own backyard. Roland's consumption does not prevent Victor's consumption.

Nonpayer Excludability

Related to consumption rivalry is the characteristic of nonpayer excludability. This characteristic indicates whether or not nonpayers can be excluded from consuming a particular good. Nonpayer excludability is based on the ability to possess and transfer property rights or ownership of a good. For some goods, nonpayers can be easily excluded from consumption because property rights are well-defined and easily controlled. For other goods nonpayers cannot be easily excluded from consumption because property rights are not well-defined and cannot be easily controlled.

Four Goods

Matching up consumption rivalry and nonpayer excludability in different combinations gives rise to four distinct types of goods. private, public, common-property, and near-public.

Let's take a look at each one.

  • Private: Private goods are characterized by rival consumption and the ability to exclude nonpayers. Such goods have well-defined property rights that can be transferred to others, but only if others pay to acquire ownership.

  • Public: Public goods are characterized by nonrival consumption and the inability to exclude nonpayers. These goods are, in essence, owned by everyone, which is actually okay because everyone can benefit from simultaneously consuming the goods.

  • Common-Property: Common-property goods are characterized by rival consumption and the inability to exclude nonpayers. These goods are owned by everyone, meaning they are not owned by anyone in particular. Even though consumption by one imposes an opportunity cost on others, one person cannot prevent another from consumption.

  • Near-Public: Near-public goods are characterized by nonrival consumption and the ability to exclude nonpayers. While nonpayers can be excluded from consumption, nonrival consumption means there is no efficiency reason to exclude nonpayers.

The Price of Efficiency

The consumption rivalry characteristic of a good determines the price needed to achieve efficiency. Efficiency is achieved if the value of good produced (price) is equal to the value of goods not produced (opportunity cost). The key to efficiency is whether or not consumption imposes an opportunity cost is imposed on others.

With rival consumption, consumption by one person imposes an opportunity cost on others who are unable to consume the good. Efficiency is achieved if the price of the good is positive and equal to the opportunity cost. If the price is less than the opportunity cost (for example, zero), then the value of the good produced is less than the value of goods not produced. Society is better of by producing less this good and more of other goods. This is achieved with a higher price that according to the law of demand reduces the quantity demanded.

With nonrival consumption, consumption by one person does not impose an opportunity cost on others. More than one person can consume the good at the same time. In this case, efficiency is achieved if the price of the good is zero, equal to the opportunity cost. If the price is positive or greater than zero, then the value of the good produced is greater than the value of goods not produced. Society is better of by producing more of this good and less of other goods. This is achieved with a lower (zero) price that again according to the law of demand increases the quantity demanded.

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Recommended Citation:

CONSUMPTION RIVALRY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 22, 2018].


Check Out These Related Terms...

     | nonpayer excludability | good types | private goods | public goods | common-property goods | near-public goods | free-rider problem | public finance |


Or For A Little Background...

     | good | production | efficiency | consumption | market demand | market | market efficiency | public sector | private sector | property rights | ownership and control |


And For Further Study...

     | market failures | public goods: demand | public goods: efficiency | taxation principles | tax proportionality | tax effects | tax equity | involuntary exchange | benefit principle | ability-to-pay principle | public choice |


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