Chapter 11/Public Goods and Common Resources 215WHAT’S NEW IN THE FOURTH EDITION:The discussions of “Basic Research” and “Fighting Poverty” have been rewritten for improved clarity. There is a new In the Newsbox on “A Solution to City Congestion.”LEARNING OBJECTIVES:By the end of this chapter, students should understand:the defining characteristics of public goods and common resources.why private markets fail to provide public goods.some of the important public goods in our economy.why the cost–benefit analysis of public goods is both necessary and difficult.why people tend to use common resources too much.some of the important common resources in our economy.CONTEXT AND PURPOSE:Chapter 11 is the second chapter in a three-chapter sequence on the economics of the public sector. Chapter 10 addressed externalities. Chapter 11 addresses public goods and common resources—goods for which it is difficult to charge prices to users. Chapter 12 will address the tax system.The purpose of Chapter 11 is to address a group of goods that are free to the consumer. When goods are free, market forces that normally allocate resources are absent. Therefore, free goods, such as playgrounds and public parks, may not be produced and consumed in the proper amounts. Government can potentially remedy this market failure and improve economic well-being.PUBLIC GOODS ANDCOMMON RESOURCES11
216 Chapter 11/Public Goods and Common ResourcesKEY POINTS:1.Goods differ in whether they are excludable and whether they are rival in consumption. Agood is excludable if it is possible to prevent someone from using it. A good is rival in consumption if one person’s use of the good reduces other people’s ability to use the same unit of the good. Markets work best for private goods, which are both excludable and rival in consumption. Markets do not work as well for other types of goods.2.Public goods are neither rival in consumption nor excludable. Examples of public goods include fireworks displays, national defense, and the creation of fundamental knowledge.Because people are not charged for their use of the public good, they have an incentive to free ride when the good is provided privately. Therefore, governments provide public goods, making their decision about the quantity based on cost–benefit analysis.3.Common resources are rival in consumption but not excludable. Examples include common grazing land, clean air, and congested roads. Because people are not charged for their use of common resources, they tend to use them excessively. Therefore, governments try to limit the use of common resources.CHAPTER OUTLINE:I.The Different Kinds of GoodsA.When classifying types of goods in the economy, two characteristics should beexamined.
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