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AnnouncementPS4 is due next Monday (March 3rd)Review section (optional): March 7 (Friday); Place: TBADoodle poll will be closed 10pm Sunday (March 2nd)Midterm: March 10, 8-9am in Lewis 100 (for my sections)1
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Chapter 11 Pubic Goods and Common ResourcesGSI: LEI CHENG02/26/20142
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OutlineThe different kinds of GoodsPublic GoodsThe Free-Rider ProblemSome Important Public GoodsThe Difficult Job of Cost-Benefit AnalysisCommon ResourcesThe Tragedy of the CommonsSome Important Common Resources3
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IntroductionThere is no such thing as a free lunch.Natural resources: rivers, mountains, lakes, and oceans etc.Public goods: playgrounds, parks, and roads etc.Goods without prices provide a special challenge for economic analysis because when goodsare available free of charge, the market forces that normally allocate resources in oureconomy are absent.This chapter examines the problems that arise for the allocation of resources when there aregoods without market prices. When a good does not have a price attached to it, privatemarkets cannot ensure that the good is produced and consumed in the proper amounts. In suchcases, government policy can potentially remedy the market failure and raise economic well-being.4
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The different kinds of GoodsThe characteristics of a good:Excludability: the property of a good whereby a person can be prevented from using it.Rivalry in consumption: the property of a good whereby oneperson’suse diminishes otherpeople’suse.5
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The different kinds of GoodsPrivate goods: goods that are both excludable and rival in consumptionFor example ice-cream cones. An ice-cream cone is excludable because it is possible toprevent someone from eating an ice-cream coneyou justdon’tgive it to him. An ice-cream cone is rival in consumption because if one person eats an ice-cream cone, anotherperson cannot eat the same cone.6
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The different kinds of GoodsPublic goods: goods that are neither excludable nor rival in consumptionFor example, a tornado siren in a small town is a public good. Once the siren sounds, it isimpossible to prevent any single person from hearing it (so it is not excludable).
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