Krugman_SolMan_CH20

Krugman_SolMan_CH20 - Krugman_SolMan_CH20 4:41 PM Page 153...

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chapter Public Goods and Common Resources 1. a. Street signs are nonrival in consumption (if I make use of a street sign, that does not reduce your opportunity to use it) and nonexcludable (no one can prevent another person from making use of a street sign). So street signs are a public good. Because of the free-rider problem, the quantity provided privately would be inefficiently low. b. Amtrak rail service is rival in consumption (if I consume a seat, you cannot) and excludable (you cannot consume the service if you do not have a ticket). Although Amtrak rail service is a private good, it creates a positive externality in the form of reduced road and air traffic congestion. Hence, there is a justification for govern- ment intervention to support Amtrak. c. Regulations limiting pollution are nonrival in consumption (my benefit from these regulations is not diminished by your benefit) and nonexcludable (people cannot be selectively excluded from benefiting from these regulations—that is, excluded from breathing clean air or drinking clean water). So these regulations are a public good. Because of the free-rider problem, the privately provided quanti- ty of these regulations would be inefficiently low. d. An interstate highway without tolls is rival in consumption (if I use the highway, I create a negative externality for you—congestion; that is, I reduce your benefit from the highway) but nonexcludable (drivers can use the highway without pay- ing for access). So the highway is a common resource. Because of non- excludability, a free-rider problem exists, and the privately provided quantity of highways would be inefficiently low. e. A lighthouse is nonrival in consumption (if I use the lighthouse to steer my boat away from rocks, you can still use the same lighthouse) and nonexcludable (boats cannot selectively be made to pay for the services provided by the lighthouse). So the lighthouse is a public good. Because of the free-rider problem, the privately provided quantity would be inefficiently low. 2. a. When the museum is quiet, it is nonrival in consumption: one additional visitor does not diminish any other visitor’s ability to enjoy the museum. Furthermore, the museum is excludable (if you don’t pay the entrance fee, you are not admit- ted). So the museum is an artificially scarce good. The marginal cost of admitting one more visitor is zero (the museum is already staffed, lighted, and heated or air- conditioned), and so the efficient admission fee would be zero. When the museum is busy, it is rival in consumption: one additional visitor in the museum diminishes any other visitor’s ability to enjoy the museum because of overcrowding. The museum is still excludable (if you don’t pay the entrance fee, you are not admitted). So the museum is a private good. There is now a marginal social cost to admitting one more visitor (the cost imposed on other visitors from a more crowded museum). So the efficient admission fee would be equal to that marginal social cost at the efficient number of visitors.
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Krugman_SolMan_CH20 - Krugman_SolMan_CH20 4:41 PM Page 153...

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