Question

5. Explain what is meant by a "Common Resource." Give one example to illustrate your answer. Explain whether the equilibrium use of a common resource is eficient or inefficient.

Answer 1

A common resource is a public good that is free to be used by all i.e. it is not exclusionary. The usage of the resource by one individual does not prevent its usage by others. For example, the forested space in a place may be used as a grazing field by cow owners. Since it is not a private or a restricted property, as many cows as possible can graze the field. Since, it does not cost anything for the cow owners to make the cows consume the grass on the field, each cow owner will allow the cow to graze till it is not hungry. Therefore, for each cow owner the equilibrium amount of grazing will be very high. Due to this, the grass in the field will get exhausted soon and there will be little grass for grazing eventually. This is the case with any other common resource, say a river. Therefore, the equilibrium use of the common resource will be inefficient.