Chapter%2015 - Econ 160, Vardanyan Chapter 15 Public Goods...

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Econ 160, Vardanyan 1 Chapter 15 Public Goods and Public Choice In this chapter we will look at goods that generate positive externalities. External Benefits and Inefficiency For the goods characterized by external benefits the equilibrium in the market does not maximize the total benefit. Consider a case of a dam, which, if built, will provide a $50 worth of benefits to each of 1,000 people that it will protect from floods. If the cost of building the dam is $20,000 it should be built because the total benefit ($50,000) exceeds total cost. However, the private benefit is only $50, so no single person will build the dam, since the benefit is much lower than cost. The government can intervene in a way that corrects this problem. If it collects a $20 per-person tax it can generate the funds in the amount necessary to build a dam. The dam is an example of a public good – a good that is available for everyone to consume, regardless of who pays and who doesn’t . Examples include bridges, highways,
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This note was uploaded on 05/27/2008 for the course ECON 160B taught by Professor Michaelvardanyan during the Fall '08 term at Binghamton University.

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Chapter%2015 - Econ 160, Vardanyan Chapter 15 Public Goods...

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