Ch 11 - Chapter 11 Public Goods and Common Resources

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Chapter 11 Public Goods and Common Resources
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So far, we have looked at the markets for  goods and services that are supplied by  private firms. Now we turn our focus to goods and services  supplied by the public sector. Consumers do not have to pay for these goods  – they are provided for use for free by  governments.
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The problem with the market for free goods is  that the market forces – price – which normally  allocate resources are absent. Without prices, the market can’t guarantee that  the good is produced and consumed in the right  amount.
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Different  Kinds of Goods It’s useful to group goods and services by two  characteristics. Excludability:   people can be prevented from  using the good or service. Example: You can’t attend a Buffalo Bills home  game unless you have a ticket.
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Rivalry:   one person’s use of the good diminishes  the ability of another person to use it. Example: I park in a free lot, taking up a space  that someone else might have wanted.
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Using these two characteristics, we can divide  goods into four categories. 1. Private Goods These are both excludable and rival. Example:  a chocolate bar It’s excludable: you can’t have one if no one will  give or sell you one. It’s rival: if I’m eating one, you can’t eat the same  one.
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2. Public Goods These are neither excludable nor rival. Example: fireworks displays They aren’t excludable: you can’t keep people  from looking up into the sky and enjoying them. They aren’t rival: one person’s enjoyment of the  show doesn’t take away from someone else’s  enjoyment.
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3. Common Resources These are rival but not excludable. Example: fish in the ocean They are rival: every fish you catch means fewer  fish for the next person to catch. They are not excludable:  the ocean is so big that 
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This note was uploaded on 01/19/2010 for the course ECON 1B03 taught by Professor Hannahholmes during the Winter '08 term at McMaster University.

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Ch 11 - Chapter 11 Public Goods and Common Resources

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