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PERSONAL INCOME AND NATIONAL INCOME: Personal income (PI) is the total income received by the members of the domestic household sector, which may or may not be earned from productive activities during a given period of time. National income (NI) is the total income earned by the citizens of the national economy resulting from their ownership of resources used in the production, which may or may not be received by members of the household sector. Personal income can be derived from national income by subtracting income earned but not received (IEBNR) and adding income received but not earned (IRBNE).

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COMMON-PROPERTY GOODS:

Goods characterized by rival consumption and the inability to exclude nonpayers. Common-property goods are one of four types of goods differentiated by consumption rivalry and nonpayer excludability. The other three goods are private (rival consumption and nonpayers can be excluded), public (nonrival consumption and nonpayers cannot be excluded), and near-public (nonrival consumption and nonpayers can be excluded). Nonrival consumption and the ease of excluding of nonpayers means common-property goods cannot be efficiently exchanged through markets and are often overconsumed.
Common-property goods are one of four types of goods differentiated by consumption rivalry (rival or nonrival) and nonpayer excludability (excludable and nonexcludable). In particular, these are goods characterized by rival consumption, meaning the consumption by one person imposes an opportunity cost on others, but without the ability to exclude nonpayers from gaining benefits from consumption.

Common-Property Goods
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The exhibit to the right illustrates the four alternative types of goods -- private, public, common-property, and near-public -- based on the mix of consumption rivalry and nonpayer excludability. Common-property goods are in the bottom left cell of the matrix, with rival consumption and the inability to exclude nonpayers.

Common-property goods are owned by everyone, meaning property rights are not controlled by anyone in particular. Even though consumption by one imposes an opportunity cost on others, one person cannot prevent another from consumption. These goods cannot be efficiently exchanged through markets and governments are often called upon to control their use. The best examples of common-property goods come from the assorted natural resources available to the planet, including the atmosphere, oceans, lakes, rivers, and wilderness areas. Because individuals and businesses in the private sector cannot effectively exclude nonpayers from consumption, governments step in to regulate and oversee the use of common-property goods.

Common-property goods need government intervention. Rival consumption means marginal cost is greater than zero. Efficiency is served if users then pay a price equal to marginal cost. Unfortunately the inability to exclude nonpayers means that a price cannot be charged. Then end result is that common-property goods are overused or overconsumed. In the case of many natural resources, such as the atmosphere, oceans, and wildlife, they can be overconsumed to the point of complete exhaustion. Governments need to regulate their use. In some cases they can do so effectively and efficiently. In other cases they can not.

Some Common Examples

The best examples of common-property goods come from the natural environment. The atmosphere, oceans, other large bodies of water, and wilderness areas are common-property goods. These goods are readily accessible to all users. No one can be excluded from using the air or the oceans. However, the use by one person can impose an opportunity cost on other uses. For example, air pollution can impose an opportunity cost on others through respiratory problems. Or the fish caught by one person cannot be caught by another.

Rival Consumption

Because common-property goods, like private goods, are rival in consumption, the consumption by one person prevents the simultaneous consumption by others. This means consuming a common-property good, like the consumption of a private good, imposes an opportunity cost on others who are not able to consume.

Suppose, for example, that Edgar Millbottom wants to do a little marlin fishing off the coast of Florida. To the extent that Edgar is successful and catches a magnificent marlin, then others, like Alicia Hyfield, are unable to receive the benefits of catching this fish, which imposes an opportunity cost.

Whether the good is private or common-property, rival consumption means that efficiency is best achieved when those who benefit from consumption pay a price equal to the opportunity cost. Markets accomplish this for private goods, but not for common-property goods.

Nonpayer Nonexcludability

Unlike private goods, but like public goods, common-property goods are characterized by the inability to exclude nonpayers from gaining ownership and control. As such, everyone in society can receive the benefits of consumption. No one can be excluded. In other words, common-property goods do not have well-defined property rights. Everyone owns a public good, meaning no one in particular can exert exclusive ownership and control.

Again, let's turn to Edgar Millbottom's marlin fishing off the coast of Florida. Edgar, Alicia, and anyone else can gain access to marlin fishing off the coast of Florida. Restricting access is virtually impossible.

With nonpayer nonexcludability, common-property goods cannot be exchanged through markets. Ownership and control cannot be transferred only to those who pay.

Enter Governments

The combination of rival consumption and nonpayer nonexcludability means that common-property goods cannot be exchanged through markets, but should be for efficiency. Even though people are not able to control access to and transfer ownership of common-property goods, governments can do so with more success. This is most often accomplished by laws and regulations. For example, laws might restrict the number of marlins caught off the coast of Florida or the amount of pollution emitted into the atmosphere.

Three Other Goods

Common-property goods are only one of four types of goods characterized by consumption rivalry and nonpayer excludability. The three are private goods, public goods, and near-public goods.
  • Private: Private goods are characterized by rival consumption and the ability to exclude nonpayers. Private goods can be easily, effectively, and efficiently exchanged through markets.

  • Public: Public goods are characterized by nonrival consumption and the inability to exclude nonpayers. Public goods cannot be exchanged through markets. The only efficient way to provide public goods is through governments.

  • Near-Public: Near-public goods are characterized by nonrival consumption and the ability to exclude nonpayers. These goods are often exchanged through markets, but are more efficiently provided by governments.

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Recommended Citation:

COMMON-PROPERTY GOODS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: August 4, 2021].


Check Out These Related Terms...

     | public finance | consumption rivalry | nonpayer excludability | private goods | public goods | near-public goods | free-rider problem | public goods: demand | public goods: efficiency |


Or For A Little Background...

     | good | production | efficiency | consumption | market demand | market | market efficiency | government sector | public sector | property rights | private sector |


And For Further Study...

     | market failures | taxation principles | tax proportionality | tax effects | tax equity | involuntary exchange | benefit principle | ability-to-pay principle |


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