Ch 19 - Public Goods.pptx - Chapter 19 Public Goods and the...

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Chapter 19 Public Goods and the Tragedy of the  Commons
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Overview Types of goods (rival, non-rival, excludable, non- excludable) Public goods Private markets will undersupply public goods. Common Resources and the Tragedy of the  Commons Overexploitation of common resources 2
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No graphs 3 Well, almost. One graph. Not in the text.
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Four types of goods Rival / Non-rival A good is non-rival if one person’s use of the  good does not reduce the ability of another  person to use the same good. Tofu is a rival good. Cable TV is not rival. Wi-Fi is not rival (mostly). 4
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Excludable / Non-excludable A good is excludable if people who don’t pay  for the good can easily be prevented from  obtaining it. Tofu is excludable. Tuna in the ocean is non-excludable. Air is non-excludable. Public-access roads (e.g., Broadway, Stadium) are  non-excludable. 5
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Private Goods and Public Goods 1. Private Goods  are excludable and rival. Most goods are private goods. •. Private goods can  be efficiently provided in competitive  markets. Because they are  excludable,  there is a strong incentive to pay  for and produce them. Because they are  rival,  excludability does not lead to inefficiency. •. The only people excluded from consuming a private good  in a competitive market are those who are not willing to  pay for it.
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7 Excludable Non- Excludable Rival Private goods Tofu Apples Ford Focus Non-Rival Non-rival private goods (club goods)
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Non-rival and excludable (“Club Goods”) Private provision  Cable TV Wi-Fi Movie theater Computer software (mostly) Digital music (maybe) Market provision is generally good (but may have P > MC). Advertising versus exclusion  Google, Facebook, etc. Also possible with some public goods (e.g. Radio, broadcast TV) REEF  Time 8
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Why does the market not always provide club goods (non- rival private goods) efficiently? A) This statement is inaccurate. The market always  provides club goods efficiently because they are  excludable.
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