Final answer:
Goods are classified based on excludability and rivalry in consumption. Excludability refers to whether people can be prevented from using a good unless they pay for it, and rivalry in consumption means if one person's use of a good prevents others from using it.
Step-by-step explanation:
Goods are classified based on two criteria: excludability and rivalry in consumption. When a good is excludable, it means that access to the good can be limited to those who pay for it. For example, companies sell cell phone service and exclude those who do not pay. On the other hand, a public good like primary education, even if provided by private companies, can be non-excludable if designed so that everyone has access, regardless of payment.
Furthermore, rivalry in consumption refers to whether one person's use of a good diminishes the ability of others to use it. For instance, two people cannot enjoy the same slice of pizza at the same time, which means private goods, such as a slice of pizza, are rivalrous. Contrastingly, a public good is non-rival, meaning that when one person uses the good, it does not prevent others from also using it. This characteristic makes it challenging for markets to produce public goods effectively due to the potential for free-riding, where individuals may use the good without contributing to its cost.