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]

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]

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:

Private good can also defined as an exclusive production of goods.

References

1. ^ 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. 
2. ^ Ray Powell (June 2008). "10: Private goods, public goods and externalities" (paperback). AQA AS Economics. Philip Allan. pp. 352. ISBN 978-0-340-94750-0. 
3. ^ 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
4. ^ "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. 
5. ^ 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
6. ^ Rivalry and Excludability in Goods. (n.d.). Living Economics. Retrieved October 22, 2011 from http://livingeconomics.org/article.asp?docId=239
7. ^ Gruber, J.(2005).Public finance and public policy. New York: Worth Publishers. ISBN: 978-0716786559