Ch 11 outline - Chapter 11 outline: I. The Different Kinds...

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Chapter 11 outline: I. The Different Kinds of Goods A. When classifying types of goods in the economy, two characteristics should be  examined. 1. Definition of  excludability : the property of a good whereby a person  can be prevented from using it. 2. Definition of  rivalry : the property of a good whereby one person’s  use diminishes other people’s use . B. Using these two characteristics, goods can be divided into four categories. 1. Definition of  private goods : goods that are both excludable and rival . 2. Definition of  public goods : goods that are neither excludable nor  rival. 3. Definition of  common resources : goods that are rival but not  excludable. 4. If a good is excludable but not rival, it is an example of a natural  monopoly. Rival? Yes No Excludable? Yes Private Goods ice-cream cones clothing congested toll roads Natural Monopolies fire protection cable TV uncongested toll roads No Common Resources fish in the ocean the environment congested nontoll roads Public Goods national defense knowledge uncongested nontoll roads C. Public goods and common resources each create externalities because they  have value yet have no price because they are not sold in the marketplace.  These external effects imply that market outcomes will be inefficient in the  absence of government involvement or private resolutions to correct the  externality.
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II. Public Goods A. Example: a fireworks display.  It is not excludable because it would be nearly  impossible to keep others from viewing it and it is not rival because one person’s  enjoyment does not preclude others from enjoying the fireworks. B. The Free-Rider Problem 1. It would be difficult to sell tickets to the fireworks show because it is not  excludable. 2.
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This note was uploaded on 08/31/2009 for the course EC 350 taught by Professor Sekelj during the Spring '08 term at Clarkson University .

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Ch 11 outline - Chapter 11 outline: I. The Different Kinds...

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