080107 - a Government incentives for building the...

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Sheet1 Page 1 080107 (Chapter 16) ------ Public Goods: 1) Nonexcludable 2) Nonrival Ex: National defense Common resources: 1) Nonexcludable 2) Rival Ex: Fish in the ocean (anyone can try and catch fish) Private Good: 1) Rival 2) Excludable Excludable good: A person must pay in order to consume the good or service Non-excludable good: A person can consume the good without paying for it Rival good: When a person's consumption decreases the amount available for other people Nonrival good: When a person's consumption does not decrease the amount available for other people Free Rider Problem: No one has the incentive to pay for the public good Tragedy of the Commons: Common resources are overused, often to the point of depletion For a private good: pick a price and add the quantities. For a public good: pick a quantity and add the prices. This is to generate the Demand/MB/MSB curve. If there is a lighthouse, for instance, that needs to be built, not all shipping companies will want to chip in to pay for it (even if e
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Unformatted text preview: a Government incentives for building the lighthouse are different for different players. Politicians: Want to be elected and re-elected Bureaucrats: Increase budget Voters: Rational ignorance* Special Interests: More business So special interests will lobby politicians and bureaucrats, the bureaucrat is likely to also lobby politicians if it helps them. *Rational ignorance: Decision to NOT acquire information because the cost of acquiring it exceeds the personal benefit from i t On the flip side, the government can decide to overproduce the good (in the example, lighthouses) past the efficient amount. Q Total Catch MB MSB 0 0 - -Sheet1 Page 2 1 100 100 100 2 180 90 80 (new fish) 3 240 80 60 MB > MSB This is overproduction of the common resource (fish), so the government can set a quota....
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080107 - a Government incentives for building the...

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