Private Goods

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. Private goods are in the top right cell of the matrix, with rival consumption and the ability to exclude nonpayers.

Private goods have well-defined property rights that can be transferred to others, but only if others pay to acquire ownership. These goods can be easily, effectively, and efficiently exchanged through markets, that is, through the actions of producers and consumers of the private sector. Examples of private goods range far and wide, from candy bars to cars to comic books to corduroy sport coat. In fact, most, not all but most, goods traded through markets are private goods.

Private goods are ideally suited for efficient market exchanges. Nonpayers can be excluded from consumption and they should be. Efficiency is achieved if those who consume a private good pay a price equal to the marginal cost of rival consumption imposed on others.

Examples Galore

Most consumer expenditures on food, clothing, shelter, and other commonly purchased goods are for private goods, private goods that are exchanged through markets.

Rival Consumption

Suppose, for example, that Edgar Millbottom is pondering the consumption of a Deluxe Club Sandwich produced by Manny Mustard's House of Sandwich. When Edgar consumes this sandwich, he and he alone receives the satisfaction and benefits provided. More over, when he consumes the sandwich, no one else, such as his friend Alicia Hyfield, can consume it. Alicia is unable to enjoy this particular sandwich. Alicia, in other words, foregoes the satisfaction that she could have received from the sandwich, and thus incurs an opportunity cost.

With rival consumption, efficiency is best achieved when the person benefitting from the good pays a price equal to the opportunity cost. Markets are very good at doing just that.

Nonpayer Excludability

Again, let's turn to Edgar Millbottom's desire to consume one of Manny Mustard's Deluxe Club Sandwiches. This sandwich has well-defined property rights. Manny, the producer, has ownership and control of the sandwich. He has the ability to transfer that ownership and control on his terms. The terms Manny has set is a $5 price. If Edgar wants to gain ownership of the sandwich, presumably to eat, then he must pay Manny the $5 price. No payment means no sandwich.

Markets to the Rescue

The combination of rival consumption and nonpayer excludability means that private goods are both efficiently provided through markets and ideally suited for market exchanges. With rival consumption markets work to achieve efficiency. Fortunately, nonpayer excludability makes markets the ideal mechanism for making exchanges.

It's almost as if society created markets for the expressed purpose of exchanging private goods. As a matter of facts, society DID create markets for the expressed purpose of exchanging private goods. And markets do a relatively good job most of the time of exchanging private goods.

Three Other Goods

• 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.


• Common-Property: Common-property goods are characterized by rival consumption and the inability to exclude nonpayers. These goods can not be efficiently exchanged through markets and governments are often called upon to control or regulate their use.


• 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.