Private good
A private good is defined in economics as "an item that yields positive benefits to people"[1] that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits;[2] and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it.[3] The market demand curve for a private good is a horizontal summation of individual demand curves.[4]
Unlike public goods, such as clean air or national defense, private goods are less likely to have the free rider problem, in which a person benefits from a public good without contributing towards it. Assuming a private good is valued positively by everyone, the efficiency of obtaining the good is obstructed by its rivalry; that is simultaneous consumption of a rivalrous good is theoretically impossible. The feasibility of obtaining the good is made difficult by its excludability, which means that people have to pay for it to enjoy its benefits.[5]
One of the most common ways of looking at goods in the economy is by examining the level of competition in obtaining a given good, and the possibility of excluding its consumption; one cannot, for example, prevent another from enjoying a beautiful view in a public park, or clean air.[6]
Definition matrix
Example of a private good
An example of the private good is bread: bread eaten by a given person cannot be consumed by another (rivalry), and it is easy for a baker to refuse to trade a loaf (exclusive).
To illustrate the horizontal summation characteristic, assume there are only two people in this economy and that:
- Person A will purchase: 0 loaves of bread at $4, 1 loaf of bread at $3, 2 loaves of bread at $2, and 3 loaves of bread at $1
- Person B will purchase: 0 loaves of bread at $6, 1 loaf of bread at $5, 2 loaves of bread at $4, 3 loaves of bread at $3, 4 loaves of bread at $2, and 5 loaves of bread at $1
As a result, a new market demand curve can be derived with the following results:
| Price per loaf of bread | Loaves of bread | ||
|---|---|---|---|
| Person A | Person B | Total | |
| $6 | 0 | 0 | 0 |
| $5 | 0 | 1 | 1 |
| $4 | 0 | 2 | 2 |
| $3 | 1 | 3 | 4 |
| $2 | 2 | 4 | 6 |
| $1 | 3 | 5 | 8 |
References
- ^ Nicholson, Walter (2004). Intermediate Microeconomics And Its Application. United States of America: South-Western, a division of Thomson Learning. p. 59. ISBN 0-324-27419-X.
- ^ Ray Powell (June 2008). "10: Private goods, public goods and externalities". AQA AS Economics (paperback). Philip Allan. p. 352. ISBN 978-0-340-94750-0.
- ^ Hallgren, M.M.; McAdams, A.K. (1995). "A model for efficient aggregation of resources for economic public goods on the internet". The Journal of Electronic Publishing. 1. doi:10.3998/3336451.0001.125. hdl:2027/spo.3336451.0001.125.
- ^ "Public Goods: Demand". AmosWEB Encyclonomic WEB*pedia. AmosWEB LLC. Retrieved 23 October 2011.
- ^ Malkin, J.; Wildavasky, A. (1991). "Why the traditional distinction between public and private goods should be abandoned". Journal of Theoretical Politics. 3 (4): 355–378. doi:10.1177/0951692891003004001. S2CID 154607937.
- ^ "Rivalry and Excludability in Goods". Living Economics. Retrieved October 22, 2011.