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Market Failure

Common Resources

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Content Contributors
Christian Bien Portrait_edited.jpg

Carys Brown

Learning Objectives

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What are Common Resources
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Common resources are non-excludable and rival in consumption. This means that anyone is available to use the resources free of charge, however, one persons consumption can prvent others from benefitting from the goods. 

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Market Failure
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An economic principle is known as the 'The Tragedy of the Commons, explains why common resources are examples of market failure. In the example of an open field, anyone is free to use the field for farming. However, with no property rights or restrictions, the free resource will soon become depleted and over-exploited. 

An example of the Tragedy of the Commons includes the over-exploitation of fish,  or climate change caused by the emission of greenhouse gasses.  

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Government Policies
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In order to reduce market failure, there is a multitude of policies that can be employed to regulate the use of resources to prevent them from being over-used. 

  • Limit the use of goods. - Restrictions on fishing. 

  • Give property rights to private owners to ensure that resources are regulated. - Private National Parks

  • Establish a limit of emissions or usage. - Cap and Trade on carbon Emissions 

  • Educate people 

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Causes of Market Failure
Market power
Market Failure - Uncompetitive Markets
Externalities
Externalities - Models
Public Goods
Common Resources
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