Externalities

EconomicsUnit 2

Rival vs. Nonrival Goods

A product is rival when consumption by one person reduces the amount available to others.

A nonrival good can be simultaneously or jointly consumed by people without reducing the amount available to others.

Excludable vs. Nonexcludable

A good is excludable if its use is easily limited to those who pay to use it.

A nonexcludable good or service can be used even by people who do not pay for it.

Ex. a good might be excludable but nonrival and vice versa.

External Costs

Some benefits or costs can fall on “third parties”- people or firms other than the producers and paying consumers of the products

Pollution, landscaping, etc. External loss or benefit Free riding?!