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]
A private good is the opposite of a public good, as they are almost exclusively made for profit.[clarification needed] Hence, the market demand curve for a private good is a horizontal summation of individual demand curves.[4] (See example below)
Unlike public goods, private goods are less likely to have the free rider problem. 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, that is people have to pay for it to enjoy its benefits.[5]
One of the most common ways of looking at goods in the economy, illustrated in the table below, 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, or clean air.[6]
Excludable | Non-excludable | |
Rivalrous | Private goods food, clothing, cars, personal electronics |
Common goods (Common-pool resources) fish stocks, timber, coal |
Non-rivalrous | Club goods cinemas, private parks, satellite television |
Public goods free-to-air television, air, national defense |
Pricing
Private goods, like most categories of good, obey the law of demand: the price increases when the demand is high but the supply is low. Alternatively, when there is an excess of a product, the price is lowered in order to decrease the surplus and reach a level where the production is more equivalent to the demand.[7]
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 2 people in this economy and that:
- Person A will purchase: 0 loafs of bread at $4, 1 loaf of bread at $3, 2 loafs of bread at $2, and 3 loafs of bread at $1
- Person B will purchase: 0 loafs of bread at $6, 1 loafs of bread at $5, 2 loafs of bread at $4, 3 loafs of bread at $3, 4 loafs of bread at $2, and 5 loafs of bread at $1
As a result, a new market demand curve can be derived with the following results:
Price per Loaf of Bread | Loaf 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 |
|
Private good can also defined as an exclusive production of goods.
References
- ^ Nicholson, Walter (2004). Intermediate Microeconomics And Its Application. United States of America: South-Western, a division of Thomson Learning. pp. 59. ISBN 0-324-27419-X.
- ^ Ray Powell (June 2008). "10: Private goods, public goods and externalities" (paperback). AQA AS Economics. Philip Allan. pp. 352. ISBN 978-0340947500.
- ^ 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. doi http://dx.doi.org/10.3998/3336451.0001.125
- ^ "Public Goods: Demand". AmosWEB Encyclonomic WEB*pedia. AmosWEB LLC. http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=public+goods:+demand. 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. doi: 10.1177/0951692891003004001
- ^ Rivalry and Excludability in Goods. (n.d.). Living Economics. Retrieved October 22, 2011 from http://livingeconomics.org/article.asp?docId=239
- ^ Gruber, J.(2005).Public finance and public policy. New York: Worth Publishers. ISBN: 978-0716786559