Ch16 - Chapter 16: Public Goods and Common Resources...

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Chapter 16: Public Goods and Common Resources Objectives: Distinguish among private goods, public goods, and common resources Explain how the free-rider problem arises and how the quantity of public goods is determined Explain the tragedy of the commons and its possible solutions
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What is the essential difference between: A city police department and Brinks security Fish in the Atlantic Ocean and fish in a fish farm A live concert and a concert on television These and all goods and services can be classified according to whether they are excludable or nonexcludable and rival or nonrival. Classifying Goods and Resources
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Excludable A good is excludable if only the people who pay for it are able to enjoy its benefits. Brinks’s security services, East Point Seafood’s fish, and a Coldplay concert are examples. Nonexcludable A good is nonexcludable if everyone benefits from it regardless of whether they pay for it. The services of the LAPD, fish in the Pacific Ocean, and a concert on network television are examples. Classifying Goods and Resources
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Rival A good is rival if one person’s use of it decreases the quantity available for someone else. A Brinks’s truck can’t deliver cash to two banks at the same time. A fish can be consumed only once. Nonrival A good is nonrival if one person’s use of it does not decrease the quantity available for someone else. The services of the LAPD and a concert on network television are nonrival. Classifying Goods and Resources
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Classifying Goods and Resources A Four-Fold Classification 1. Private Goods A private good is both rival and excludable. A can of Coke and a fish on East Point Seafood’s farm are examples of private goods. 2. Public goods A public good is both nonrival and nonexcludable. A public good can be consumed simultaneously by everyone, and no one can be excluded from enjoying its benefits. National defense is the best example of a public good.
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Classifying Goods and Resources 3. Common Resources A common resource is rival and nonexcludable. A unit of a common resource can be used only once, but no one can be prevented from using what is available. Ocean fish are a common resource. They are rival because a fish taken by one person isn’t available for anyone else. They are nonexcludable because it is difficult to prevent people from catching them.
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Classifying Goods and Resources 4. Natural Monopolies In a natural monopoly , economies of scale exist over the entire range of output for which there is a demand. A special case of natural monopoly arises when the
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Ch16 - Chapter 16: Public Goods and Common Resources...

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