Lecture 5 - Lecture 5 Public Goods Defining Public Goods...

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Lecture 5 Public Goods
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Defining Public Goods Pure public goods Non-rival in consumption Non-excludable Impure public goods Satisfy the two conditions to some extent, but not fully
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Examples: types of goods Characteristic of the Good Private Government Pure private good Food, clothing, cars Government liquor stores Non-rival Clubs, theaters, sporting events Transit facilities, public sanitation Non-excludable Hospitals, transportation Public parks, roads Pure public goods Fireworks, honesty, information Public TV and radio, national defense
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Provision of Private Goods Horizontally sum individual demand Equilibrium condition: MRS=MC
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Provision of Public Goods Vertically sum individual demands Must choose common quantity Willing to pay different prices for same unit of public good Equilibrium condition: MC equal to sum of MRS
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Private Sector: Under-provides public goods Why under-provision? Free riders
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Lecture 5 - Lecture 5 Public Goods Defining Public Goods...

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