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This page compares the properties of several typical utility functions of divisible goods.These functions are commonly used as examples in consumer theory.. The functions are ordinal utility functions, which means that their properties are invariant under positive monotone transformation.
Excludability was originally proposed in 1954 by American economist Paul Samuelson where he formalised the concept now known as public goods, i.e. goods that are both non-rivalrous and non-excludable. [1] Samuelson additionally highlighted the market failure of the free-rider problem that can occur with non
Wild fish stocks are a rivalrous good, as the amount of fish caught by one boat reduces the number of fish available to be caught by others. In economics, a good is said to be rivalrous or a rival if its consumption by one consumer prevents simultaneous consumption by other consumers, [1] or if consumption by one party reduces the ability of another party to consume it.
Consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem". If too many consumers decide to "free-ride", private costs exceed private benefits and the incentive to provide the good or service through the market disappears.
Many forms of price discrimination are legal, but in some cases charging consumers different prices for the same goods is illegal. For example, in the United States, the Robinson–Patman Act makes price discrimination illegal in certain anti-competitive interstate sale of commodities.
It can be shown that consumer analysis with indifference curves (an ordinal approach) gives the same results as that based on cardinal utility theory — i.e., consumers will consume at the point where the marginal rate of substitution between any two goods equals the ratio of the prices of those goods (the equi-marginal principle).
Excludability describes the characteristic regarding whether a good can be withheld from certain consumers. In terms of the same good, rivalry describes its accessibility to competing consumers. The combination of excludability and rivalry as parameters is reflected through various types of property rights.
Normal goods are goods that experience an increase in demand as the income of consumers increases. The demand function of a normal good is downward sloping, which means there is an inverse relationship between the price and quantity demanded. [8] In other words, price elasticity of demand is negative for normal goods. Common goods mean that ...