10-11 lecture notes

10-11 lecture notes - therefore no one would be willing to...

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Private goods o Excludable- the market can exclude people who are unable or unwilling to pay the price and therefore are unable to obtain a good o Rivalrous- one person’s use of the good precludes others’ use of the item Public goods o Non-excludable- everyone is able to enjoy the good without paying for it o Non-rivalrous- one person’s use of a product does not preclude others’ use of it Public goods are generally either under-produced or not produced at all under a free market, which leads to a market failure Q PA PB PC Marginal Soc Benefit 1 50 30 10 90 2 40 25 8 73 3 30 20 6 56 4 20 15 4 39 5 10 10 2 22 Marginal cost = $56 but no one is willing to pay that for any light and
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Unformatted text preview: therefore no one would be willing to supply this light in the private sector • In the public sector 3 street lights would be provided • Therefore, the private sector is not good at providing public goods • Government then will do the financing and ask the private sector to produce the goods • The government then has to make three decisions: o Production o Financing o Distribution • Asymmetric information- give buyers all information essential to buying the products so buyers know effects and quality of all products o Labels o Warranties o Advertisements (side effects) o Truth in declaration...
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