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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