An artificially scarce good is a good that is excludable but nonrival in consumption. As we’ve already seen, pay-per-view movies are a familiar example. The marginal cost to society of allowing an individual to watch a movie is zero because one person’s viewing doesn’t interfere with another person’s viewing. Yet cable companies prevent an individual from seeing a movie if he or she hasn’t paid. Goods like computer software and audio files, which are valued for the information they embody (and are sometimes called “information goods”), are also artificially scarce.

Markets will supply artificially scarce goods because their excludability allows firms to charge people for them. However, since the efficient price is equal to the marginal cost of zero and the actual price is something higher than that, the good is “artificially scarce” and consumption is inefficiently low. The problem is that, unless the producer can somehow earn revenue from producing and selling the good, none will be produced, which is likely to be worse than a positive but inefficiently low quantity.

We have seen that, in the cases of public goods, common resources, and artificially scarce goods, a market economy will not provide adequate incentives for efficient levels of production and consumption. Fortunately for the sake of market efficiency, most goods are private goods. Food, clothing, shelter, and most other desirable things in life are excludable and rival in consumption, so the types of market failure discussed in this module are important exceptions rather than the norm.