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EEP101_lecture8 - Eep101/econ 125 lecture 8 Public Goods...

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Eep101/econ 125 lecture 8 Public Goods David Zilberman
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Overview Heterogeneity, Non-rivalry, and Market Failure · Non-excludability and Market Failure · Optimal Provision with Homogeneous Individuals · Private Market Outcome for a Non- excludable Public Goods · Mechanisms for Providing the Socially Optimal Level of Public Goods · The Specification of Congestion Costs in Public Goods Models
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Public goods are goods or services that can be consumed by several individuals simultaneously Non-rivalry- Multiple individuals can consume the same good without diminishing its value. Non-excludability , an individual cannot be prevented from consuming the good . Examples, fresh air, a public park, a beautiful view, national defense .
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Original demand-1 P Q Demand of one individual And the supply Q1 D=a-bQ MC=c-dQ Q 1 = α - χ β + δ D1
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Horizontal demand -2 P Q Demand of one individual And the supply Q1 D2H=a-Qb/2 MC=c-dQ Q 2 H = α - χ .5 β + δ D1 Q2
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Horizontal demand -large N P Q Demand of one individual And the supply Q1 DINH=a-Qb/N MC=c-dQ QNH = α - χ 1/ Νβ + δ DH1 DHN DH2 Q2 QN
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Vertical aggregation-2 P Q Demand of two individuals And the supply Q1 D2=2a-2bQ MC=c-dQ Q 1 = 2 α - χ 2 β + δ D1 D2 Q2
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Vertical aggregation-3 P Q Demand of three individuals And the supply Q1 D3=3a-3bQ MC=c-dQ Q 1 = 3 α - χ 3 β + δ D1 D2 Q2 D3 Q3
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Vertical vs horizontal aggregation Horizontal demand lead to infinitely elastic demand at P=a. Vertical leads to infinitely in-ealstic at Q=a/b
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